It was vintage Chandrababu Naidu. Only, it wasn't. Y.S. Rajashekhara Reddy, the current Chief Minister of Andhra Pradesh-Naidu was his predecessor-used the occasion of the inauguration of Microsoft's India Development Centre in Hyderabad to announce a potential $3.1 billion (Rs 13,950 crore) investment by a foreign company in the state. Reddy had Microsoft CEO Steve Ballmer by his side, the audience boasted a smattering of CEOs of Indian companies, and the announcement itself had to do with a line of business everyone, including this magazine, once considered unviable in India, chip making.

That's chip as in silicon, not the lipid caramelised solanum tuberosum variety that several companies, Indian and multinational, are making pretty successfully in the country, thank you. Until the announcement came, only the rabidly optimistic and the marginally demented could have thought India had a chance at making chips. As this magazine pointed out (coincidentally, in the same space as this article; see Water Woes, BT, July 6, 2003), it didn't seem likely that companies would overlook the huge capacities built over the years by Taiwanese chip foundries and invest in fresh capacities in India. Not when the manufacture of a two-gram silicon chip requires 32 kilograms of ultra-pure water, a commodity that India can never seem to get enough of.

Reddy's announcement had to do with Intellect Inc., a Seoul-based company that seeks to invest $600 million (Rs 2,700 crore) in the first phase and $2.5 billion (Rs 11,250 crore) in the second, into a project it calls India Semiconductor Manufacturing Company. "Production will commence by the third quarter of 2006," says P. June Min, Chairman, Intellect Inc., confidently. And India will have its first real chip factory.

Three days after Reddy's announcement, Intel CEO Craig R. Barrett indicated, on a routine visit, that India was among the countries the world's best-known chipmaker was evaluating from the manufacturing point of view. This magazine's first instinct is to dismiss that; after all, Intel execs on a visit to India have always been saying such things (for the record, the article we referred to earlier quoted Paul Otellini, the man who will take over from Barrett in May 2005, saying on a visit to the country that "We are open to a manufacturing base in India, although there are no immediate plans").

The power- and water-requirements of a chip factory (called FAB, short for fabrication unit) remain high, 35 mw and 10,000 tonnes a day in this case to produce 30,000 8-inch wafers (chips are manufactured in agglomerations called wafers; the 8-inch specification refers to the diameter of the wafer) a month in the first phase. Still, if June Min is willing to put his money where his mouth is, there must be some logic to setting up a FAB in India. "India is becoming increasingly attractive as a destination for a chip manufacturing unit," he says, adding that low cost labour (35 to 50 per cent cheaper than in China in the case of blue-collar workers) and "a growing market for hardware" make the conditions just right.

Actually, make that, right for one kind of chip making. The output of June Min's (ad)venture is targeted largely at the domestic market. That may well make the difference: India still leaves a lot to be desired from the making-for-export point of view. Ergo, if the domestic market for hardware booms, and it is expected to (see Hardware's Rs 75,000 crore Opportunity, BT, February 29, 2004), manufacturing chips locally may become viable.

Hold the bubbly, though. India Semiconductor Manufacturing Company is still some way off before it becomes more than June Min's intent and the Andhra cm's encouragement. There's money, some $600 million of it that is needed: the equity of $160 million (Rs 720 crore) will come from venture funds, and Indian investors and companies; $290 million (Rs 1,305 crore) from potential customers such as LG and Samsung as loan against equipment and fees for sharing capacity; and $150 million (Rs 675 crore) from the government. This is no different from the way such deals are structured in other parts of the world, points out J.C. Mohanty, Principal Secretary (Information Technology and Communication), Andhra Pradesh, but "as the amount involved is huge, the state government is talking to the Government of India and seeking help". The amount involved may seem small when compared to the cost of setting up a new 8-inch wafer FAB (a minimum of $1.2 billion, Rs 5,400 crore)-June Min says this is because the equipment will be second-hand-but it still needs to be raised and that (not water) could be India Semiconductor's biggest challenge.

-By E.Kumar Sharma

FRATRICIDE
Family Business
It hasn't been a great year for families at work. Here's why:

R.S. Lodha

On July 3, 2004, Priyamvada Birla, the head of the M.P. Birla group dies leaving (almost) everything to her confidante R.S. Lodha, a chartered accountant and one-time FICCI chief. The other Birlas approach the courts (also see Another Family Soap on page 22).

BPL's TPG Nambiar (L) and Chandrasekhar

The patriarch of the BPL group approaches the Company Law Board in September alleging that son-in-law Rajeev Chandrasekhar used unfair means to gain control over the group's cellular businesses.

Reliance's Anil Ambani (L) and Mukesh Ambani

This may sound cruel (very very cruel) but even H.H. Munro, a man famed for his endings, couldn't have scripted one such to mark a year that has generally been unkind to business families.

-Alokesh Bhattacharyya

SECOND
The ARV Virus
More anti-retro virals of Indian origin go off the WHO list. Why?

R&D rumblings: But this is no imperialist plot

In a worrying trend, since May this year, the World Health Organisation (who) has been removing anti-retro virals (ARVs; anti-aids drugs) made by Indian companies from its approved list. The companies that have suffered this to date include Cipla, Ranbaxy and Hetero Drugs and that could just be the beginning.

There's nothing discriminatory or unfair about who's action: as the organisation explains in a release put out earlier this year, this is the result of systematic inspections conducted by it of contract research organisations (CROs) that have carried out bioequivalence studies for prequalified medicines, starting with products for priority diseases.

A little bit of background may be in order here. Indian pharmaceutical companies essentially got on to the list by leveraging their ability to create cheap generic versions of expensive anti-aids medication put out by Big Pharma. They hired Indian CROs to conduct bioequivalence studies on their products-these show, for instance, that Product a manufactured by Indian company X works just as well as Product B manufactured by Big Pharma member Y-not out of the belief that common nationality would influence the working of these companies, but because they were a whole lot less expensive than their global peers. For instance, a test that costs Rs 1 crore in the US, can be carried out in India for as little as Rs 6 lakh. It is with the results of these CROs that who has problems. Not surprisingly, companies such as Ranbaxy have now started getting their tests done in other countries.

The CROs themselves are singing a different tune. "Companies here have typically been compromising on costs and quality," contends Dr. S.P. Vasireddi, Chairman and Managing Director, Vimta Labs. He reasons that data storage and documentation are the key to bioequivalence studies, but with customers (Indian pharma companies) "typically never asking for documentation" that can help them analyse and reconstruct a study, "these do not get stored for very long". "Close to four years ago, the cost (of a bioequivalence study) in India was one tenth that in the us, but now we are able to offer only a 40 per cent cost advantage," he adds, implying that those CROs that do the job for less often end up compromising on issues related to data storage and documentation.

Far from the CROs letting Indian Pharma down, then, this seems to be an instance of companies doing themselves under in an effort to save some money.

-E. Kumar Sharma

4% Returns; $6.8 Billion Invested
So, what's the secret that makes India hot for foreign institutional investors?

It's nothing, really. To date, Foreign Institutional Investors (FIIs) have put in some $6.8 billion (Rs 30,600 crore) into the Indian market this year. Now, according to one of the most respected emerging markets bechmarks, the Morgan Stanley Capital Index, India's year-to-date performance, as on November 26, was 4 per cent. That means an investment of Rs 100 in the stocks that make up this index on January 1 of the year, would be worth only Rs 104 now. The corresponding figure for Indonesia is 42.64 per cent. So, what explains India's allure to FIIs? Well, earlier this year, FIIs were net sellers in the Indian market. Since August, however, attractive valuations have lured them back. For instance, between June 1 and November 26, the performance of the Indian stockmarket has been impressive. Expectedly, since September 1, 2004, FIIs have pumped in $2.46 billion (Rs 11,070 crore) into Indian stocks.

-Roshni Jayakar

Virgin Market
Sir Branson shocks and awes India with some announcements (as only he can).

Virgin Atlantic's Branson: Stong-arm tactics?

If he has his way flyers on Virgin Atlantic's new Business Class can become members of the 'mile-high' club, thanks to their new double beds. But, will Sir Richard Branson stop there? No, he wants people to 'do it' everywhere. Next stop: space, or to be more precise, in orbit around the earth.

After tying up with aviation innovator Burt Rutan, who recently won the $10-million X-Prize for leading the team that put the first privately funded craft 'Spaceship One' into space (defined here as 100 kilometres above sea level), Branson promises a heavenly experience for flyers. In India to ostensibly promote his charity work (along with Cherie Blair) he is more than happy to discuss space and articulate his desire to enter the Indian telecom market (Internationally, Virgin is a virtual operator, branding and marketing airtime that it buys from other companies). "Virgin Galactic Airways, will be based near Las Vegas, Nevada, USA, and will have a fleet of five spacecraft modelled on Spaceship One. Each can carry six passengers at a time to space, and we hope to be running a daily service," he rattles off. The price-tag? Around $195,000, which is a mere Rs 87.75 lakh (way cheaper than a Maybach). It is, Branson admits, "a tad expensive, but it will be the ride of a lifetime, and anyway the way the dollar is going, I am sure it will become more affordable". The first five passengers: Branson himself along with his dad Ted, mom Eve, daughter Holly and son Sam.

-Kushan Mitra