Technology major Hindustan Semiconductor Manufacturing Corporation (HSMC) has announced a technical partnership with Germany’s Infineon Technologies to set up a chip manufacturing unit in India with a total investment of $4 billion.

The announcement was made after a meeting between Communications and IT Minister Dayanidhi Maran and top officials of HSMC and came within a week of India unveiling a new policy for the semiconductor industry with incentives to chip manufacturers.

The unit will come up as a semiconductor complex, also being called Fab City, and manufacture chips and smart cards for mobile phones, automotive industry and set top boxes for cable TV and direct-to-home operators, HSMC officials said.

The location of the project, to be set up in two phases, is to be decided. The entire technology for the project will come from Infineon, which is Europe’s fourth largest chip manufacturer and has been in India since 1997 and set up a research centre with an investment of $150 million.

The first unit will manufacture eight-inch chips and require an investment of $1 billion, said HSMC Board Chairman Deven Verma, adding the second will make 12-inch chips and require $3.2-$3.5 billion in investment.

“I am pleased that one of the world’s leading semiconductor companies, Infineon Technologies, is entering into a strategic cooperation with HSMC for the project,” Maran said after the signing of a pact between the companies.

He said the value of the domestic demand for semiconductors would grow from the current $3 billion to $36 billion by 2015.

According to the semiconductor policy, which was announced on February 22 and came into effect from March 21, a company would need to invest a minimum of Rs.25 billion to avail the incentives for semiconductor plants and Rs.10 billion for manufacturing of other products.