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IBM, STM groups working on India chip facility

Major concessions given to attract envisaged investments of Rs.500 billion

India appears set to get its first chip-making facility with at least two global players - IBM and STMicroelectronics - in advanced stages of talks with the government for an investment of over Rs 50,000 crores (Rs.500 billion), according to a Times of India report.

Both STMicroelectronics, Europe's largest chipmaker, and the consortium comprising IBM have indicated that they would initially invest over Rs 25,000 crores each, at least two government officers familiar with the development said. Through the investment the government is hoping to not just get valuable foreign exchange but also go for import substitution.

The location has not been finalized, but top government sources said that one of the investor consortia has indicated that it wants to set up the facility near Greater Noida, while another one has been proposed in Gujarat. A third option is near Bangalore where an information technology investment region (ITIR) spread over 42 square km is being set up.

The units are expected to get concessions worth nearly Rs 60,000 crores over 13 years, which will include a three-year construction period and the first 10 years of operations. "Chip-making requires high quality power and water supply, which need massive investments. Besides, globally companies locate facilities where governments offer certain benefits," said a high-ranking officer. Taiwan, South Korea and China have used concessions to attract investors.

Commerce & industry minister Anand Sharma said the move was part of the government's drive to reduce dependence on import of products and shift to local manufacturing to deal with the problem of current account deficit. He said the demand for electronic hardware is expected to reach $400 billion by 2020, compared to around $45 billion now.

Although India is an important center for chip design and verification, chip production is non-existent. If the investments materialize, they would stimulate other related firms to enter, which would result in further foreign investment into the country.

This is India's second attempt to attract chipmakers into the country after an earlier bid failed five years ago. In 2007, the government had announced a package to woo investors but had to revise it last year to make it more attractive. Intel and SemIndia were companies that had shown interest.

Even this time, the Planning Commission has certain reservations but the issue is set to be decided by the Union cabinet.

Based on Times of India story

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