The slowing economy is shattering India's dream of placing itself on the world map of semiconductor (wafer fab) manufacturing, and keeping company with countries like Taiwan, China, South Korea, Japan, Singapore and the US.

Chip major AMD's plan, for instance, to set up an assembly-cum-testing plant facility with SemIndia did not work out since the financial closure could not take place. Intel said it never had any such plans.

Moreover, major investment plans like that of Mukesh Ambani's foray into the capital-intensive semiconductor business with a mammoth investment of Rs 30,000 crore (Rs 300 billion) have also gone on the back-burner due the financial crisis, according to sources.

Besides, of the 17 proposals worth Rs 157,000 crore (Rs 1,570 billion) that the government said (announced in Chennai last month) it has received, 15 are from companies planning to set up solar plants and not wafer fabs.

A full-fledged fab requires an investment of $3-4 billion (Rs 135-180 billion). Moreover, even if a fab were to come up now in the country, the technology would be rendered obsolete by the time it starts production.

"Even these (solar plants) proposals have been vegetating with the government. Not a single proposal has been cleared so far. If the government was serious about making the electronics manufacturing ecosystem robust in the country, why is it sitting on these proposals? How can you sustain a company's interest for so long?" asks an industry source.

A new Indian Semiconductor Association-Frost Sullivan study highlights this fact. 'Despite the efforts facilitated through policy changes and incentives, there has been a failure to create an ecosystem for nurturing electronics manufacturing within the country,' it states.

The government is understood to have so far shortlisted four solar plant proposals -- that of Moser Baer [Get Quote], KSK Energy, Titan Energy and Solar Semiconductor. However, it has not given any formal clearance or letter to the companies so far.

Many analysts, meanwhile, have argued there is no need to design a special policy for chip manufacturing, incorporating large government subsidies, since chip manufacture has become a competitive and commoditised business involving huge volumes and low margins. Far better for the country to focus on the design end (where more than 125 players already exist in the country), and to leave fabrication to the people who are already in the business.

Other players have argued that India will need a fabrication industry of its own, in order to create a full semiconductor ecosystem. The Indian semiconductor industry market, for instance, is expected to grow at a compounded annual growth rate of 13.4 per cent to touch $7.59 billion by 2010. It was earlier forecasted to grow at a CAGR of 26.7 per cent.

The potential, however, remains. Information technology and office automation, wireless handsets and communications segments are going to define the semiconductor market growth, states the report.

The semiconductor market growth is expected to be driven by products/ services such as set-top boxes, wireless handsets, the 3G roll out, deployment of WiMAX, notebooks and smart cards. Opportunities exist for semiconductors in LCD TV, digital camera and storage flash memory markets.

The problem, though, is that more than 50 per cent of the requirement is currently imported. The figures tell the story. The total revenues of the Indian semiconductor market (total market) is poised to grow from $5.9 billion in 2008 to $7.59 billion in 2010 at a CAGR of 13.4 per cent.

The total market is defined as the total consumption of semiconductors in India, in any form (can be purchased locally, imported as part of completely knocked down or semi knocked down, imported as a complete product), by any source (directly from semiconductor company offices in India, distributor sales, direct imports etc) and in either currency (US dollars or Indian rupee).

On the other hand, the total available market revenue is anticipated to climb from $2.53 billion in 2008 to $3.24 billion in 2010 with a CAGR of 13.1 per cent. The total available market is consumption of semiconductors in India by virtue of manufacturing of end-user products in India in addition to consumption through a local purchase order in India.