Software to hardware

Conventional wisdom that India is the place to be in if you're in software, and China if you're in hardware, looks like it's about to be turned on its head, with about $22 billion of foreign investment proposals already in for 2006 in India. Of this, around $9 billion has been announced this year itself; indeed, since Communications and IT Minister Dayanidhi Maran has shared the dais for each one of these announcements, perhaps he should get the "most investor-friendly minister of the year" award! Apart from the fact that the announcements are not small change, the fact that the would-be investors include Intel, Microsoft, Cisco and an alliance with chip-maker AMD, adds to the quality of the story. Then there's another $3-4 billion investments that will be made by Indian telcos like Reliance, Bharti and BSNL. Add all this together, and it becomes serious money, as well as serious technology.

Eventually the game is about volumes""if 3 million mobiles are sold each month in the country, the Motorolas and the Nokias simply have to manufacture phones here, and there have to be companies looking at designing specialised chips for mobiles. If the market for PCs gains depth, then the big players need to be here for that too. Add to this the country's software-design skills (there are 120-130 top-rung chip-designing firms working in the country already), and it's not surprising that India is beginning to look like a hot destination for quality investment.

Getting the announcements is the relatively easy part; it has to be matched with equally serious work on the ground, or little of the promised investment will materialise. In telecom, for instance, despite Mr Maran's announcement of very attractive entry fees in the long-distance and Internet telephony markets, the basic access licence still costs around Rs 1,600 crore, and so there will be few new foreign or local investors. The regulatory environment still looks nightmarish since the telecom regulator's ability to rein in incumbent players like BSNL remains suspect and there is a cold war between the telecom ministry and the regulator""the fact that 3G spectrum continues to remain unallocated will also affect the large investment plans of local companies.

As for the "fab" revolution, if it is to take place it will take a lot more than just growing demand and great minds""it requires clear incentives from the government. Intel, for instance, decided to go in for a fabrication plant in Israel after the government offered it $580 million by way of incentives""India has still not been able to make up its mind on whether or not to give such incentives. China offered to raise import duties so as to give the plant protection from imports, 10-year tax holidays, and other incentives. Even Mexico helped with long-term bonds. Since India is far from being in a position to take such initiatives, and certainly not quickly, it is not certain that the AMDs of the world will wait forever""indeed, if you look at the AMD offer, it is conditional upon the company reaching certain volumes, on the offers it gets from the government, and so on. So the money that has been announced is in many cases not yet really committed.