Will India succeed in its quest to create the next Silicon Valley? The government is convinced it has a good chance of attracting semiconductor companies to help accelerate the creation of a local chip industry. And it has signed up the research and consulting firm Accenture to help set up the terms and conditions for proposals it is soliciting from investors and semiconductor manufacturers.
Accenture said it agreed to a request from India's Department of Electronics and Information Technology to examine "proposals from global technology providers and investors interested in building semiconductor fabrication units" in the country. The high-tech consulting firm is expected to develop the template for business proposals and suggest the terms and conditions that would govern the relationship between the interested parties and the Indian government.
"With an investment scope of billions of U.S. dollars, this strategic project holds considerable promise for Indian manufacturing," Krishna Giri, managing partner/director for Accenture's health and public services business in India, said in a press release. "By bringing together investors, manufacturers and the government of India, this initiative will help build the critical collaboration that is needed to bridge the gap in domestic semiconductor production."
The Indian government has made the creation of a local semiconductor manufacturing operation one of the cornerstones of its plan for technology industry development and economic growth. With demand for high-tech equipment and services exploding in the country, the government says it can create jobs and foster growth by encouraging investors to establish chip manufacturing plants there. It has said Indian demand for semiconductors could be as high as $400 billion in the next eight years, but the local market would be able to satisfy only about one-quarter of that demand.
Many chip vendors have branches in India. Few have been looking at setting up fabrication plants in the country. The cost of setting up semiconductor plants can be extremely high -- between $3 billion and $4 billion for next-generation fabs. And the number of chipmakers that own and run their own fabs has declined in recent years as many companies have outsourced wafer production to foundries like Taiwan Semiconductor Manufacturing Co. (TSMC) (NYSE: TSM) to reduce cost.
India has been highly successful in winning IT service and consulting business from around the globe. Nevertheless, it is not considered an attractive high-tech manufacturing center, and it hasn't been able to gain traction in its quest to compete with China, Vietnam, Thailand, and Indonesia for electronics production. As a result, the local electronics supply chain is underdeveloped compared with China's.
To attract chipmakers and financiers, India would have to offer very attractive incentives, including low- or no-interest loans, tax breaks, and other guarantees for smooth takeoff. It might even have to set itself up as a financial partner to reduce the risks investors must assume. Indications are that the government is seriously considering these steps. In the press release from Accenture, Ajay Kumar, joint secretary of India's Department of Electronics and Information Technology, said he believes "this initiative will help create an ecosystem for electronics system design and manufacturing in the country."
At this point, the idea of a vibrant semiconductor fabrication industry in India remains a fond wish. Accenture may be able to help the country establish the modalities and terms for attracting and retaining investors, but these represent only the basic foundation for the more difficult job of winning over investors who are also being wooed by other nations around the globe.