India’s first tryst with chip will begin next month when a consortium of non-resident Indians commence the construction on India’s first semiconductor fab at Hyderabad.

Also with this, one other chip manufacturing plant also is likely to be under way this year.

SemIndia, a private consortium of US based semiconductor entrepreneurs and the Government of Andhra Pradesh with the technology backing of AMD is building the fab at Hyderabad. Sandalwood Partners, a Silicon Valley venture capital firm that focuses on India, is a SemIndia investor. So is Singapore-based Flextronics International.

Andhra Pradesh Chief Minister YSR Reddy said, “We want to make this Fab City a world-class one.”

The fab here at Hyderabad will suffice the needs of India rolling out chips that will power all computers, mobile phones, high-end TVs and digital audios that are made in India.

According to Frost and Sullivan, India’s domestic electronics market is expected to be worth USD 363 billion in 2015 from just USD28 billion in 2005.

Thus, the race is on to build India’s first fab. SemIndia faces tough competition from Hindustan Semiconductor Manufacturing, or HSMC. It, in fact, could start construction in June. There’s another South Korean company that too is building a fab in India with second hand machines being shipped from South Korea.

HSMC topper Devendra Verma says, “The plan is for our first chips to come off the line in about 24 months. We’re working toward ground breaking in the next month or so.” German chip company Infineon backs HSMC.

Fab City could also help fabless chipmakers such as Nvidia and Xilinx who don’t own their own fabs but instead farm out the actual manufacturing to foundries. The first factories in Fab City will be foundries that contract their services.

The real impetus to India’s chip dream came in the form of tax incentives the central government decided to exempt fabs 20-25 per cent of the cost of chip factory.

Another reason is that India is a strong player in chip design. It was felt that a local foundry could supplement the designs being done in India.