BANGALURA, India — India's long awaited semiconductor manufacturing policy has been announced, paving the way for the country to make its mark on the global semiconductor map.

Dubbed the Special Incentive Package Scheme, the initiative is focused on attracting investments for setting up semiconductor plants and other technology manufacturing industries. Semiconductor companies seeking incentives—which will be 20 percent of the capital expenditure during the first 10 years —will have to invest a minimum $550 million. according to the plan.

The broad contours were announced Thursday (Feb. 22) and the finer print will be revealed in two weeks in a document that spells out specifics about the level of equity, the interest-free component and other financial details.

While India has a high profile as a software outsourcing destination for IT backend and semiconductor chip design services, the emerging growth of the local electronics equipment hardware market is expected to accelerate rapidly, according to venture capitalists and leading U.S. chip companies based here.

As a result, India is keen to attract electronics manufacturers, especially semiconductor makers to the region.

According to the policy document, participating companies will have to set up in Special Economic Zones to qualify for special tax incentives and tax holidays. The subsidy will be in the form of tax breaks and interest-free loans.

The threshold investment limit for manufacturing products such as storage devices, micro and nano technology products and organic light emitting diodes, as well as assembling such products, has been set at $220 million.

If the unit is located outside the zones, the incentive would total 25 percent of the capital subsidy for the first 10 years; countervailing duty on capital goods would be exempted.

Announcing the policy—which will extend through 2010—IT minister Dayanidhi Maran said India can expect over $10 billion dollars of foreign direct investment. "A typical fab requires a minimum $3 billion investment. Our country has the ecosystem to take two to three such fabs," he said.

Urging the states to come up with investment-friendly policies for such companies, Maran said the center would also support technology clusters, which have proven successful in China.

"Government has received got good inputs from the investment commission to create clusters. The Department of Information Technology will be working with state governments to develop cluster technology also," he said.

In response to a query on Intel's plans in India, Maran said the onus is now on the global chip maker to decide whether to come to India or not. "We have rolled out the red carpet and are welcoming companies to come and invest in India in semiconductors or other related products. There are many [multinational corporations] who are in talks with us," said Maran. "They have been eagerly awaiting this policy."

"During my visit to the U.S., I saw many such companies who are interested in setting up manufacturing units in India," he added

There was no guarantee that the oft-delayed chip policy would be made today. There were suggestions that a number of changes would be made and the Finance Ministry would dilute the policy. Another concern was that it could be delayed once more and thus send out the wrong signals to the investing community.

Interagency battles between the two ministries—the Finance Ministry headed by market reformer P. Chidambaram from the southern Indian state of Tamil Nadu and IT Minister Maran. Maran, also from the same south Indian state, has overseen radical change in the Indian telecommunication industry and was instrumental in making Sriperumbudur (on the outskirts of Chennai, a port city in south India) a telecommunications manufacturing hub, the first of its kind here.

In the event, there was not a major letdown in the capital incentives offered. "We had wanted the government to pitch in with 25 percent of the capital expenditure with the [zones] benefits but what has been offered now is 20 percent," said Raj Khare, Chairman of the Indian Semiconductor Association (ISA).

"But, that does not mean that we are disappointed. We are very excited that the semiconductor policy has been announced and I am sure that it will send the right signals to those who have been waiting to make further investment in India," he added.

Last February, a joint study between ISA and Frost & Sullivan suggested the consumption of electronic goods would grow to $363 billion by 2015 from the $28 billion consumption in 2005. This would account for 11 percent of the world market by 2015 from a mere 1.8 percent in 2005.

It also suggested the country would use $36 billion worth of semiconductors in 2015, and that the industry would become one of the largest employers, creating 3.6 million direct jobs and an additional 5.6 million related jobs, with a combined impact of nearly 28 percent on India's GDP by 2015.

Meanwhile, U.S. and Indian trade officials were meeting in Washington this week to discuss possible easing U.S. export controls on technology shipments to India.