Intel, the world’s largest chipmaker, has walked away from making a multi-billion dollar investment in India after waiting three years for the government to finalise industry guidelines.

The US company, which was exploring the option of manufacturing in India, is setting up plants in China and Vietnam instead.

Craig Barrett, Intel’s chairman, said: “The government has been a bit slow in coming out with a semiconductor policy and missed the window on Intel's manufacturing facility for now. It did not have a well documented plan. The Indian programme for semiconductor manufacturing was not as timely and we had already made prior commitments elsewhere.”

Although Mr Barrett said that when Intel needs more capacity, India would still rate “high on the list of possible investments”.

The news is a blow to India’s credibility at a time when it is actively courting foreign investment in manufacturing, which the government hopes can mirror the success of the country’s flagship services sector.

Furthermore, it comes just as India’s semiconductor sector is booming. Sales of electronic equipment are forecast to rise from $28.2 billion (£13.9 billion) in 2005 to $363 billion by 2015, according to the Indian Semiconductor Association, pushing the value of the domestic semiconductor market – which relies almost wholly on imports – to $36.3 billion.

The industry is awaiting long-promised government guidelines that would help foreign chipmakers such as Intel, Siemens and Texas Instruments to plan any investments in India. Manufacturing units typically cost about $3 billion to $4 billion to set up.

After nearly three years of deliberation, the government announced in February that investors could expect a 20 per cent capital subsidy, including tax breaks and interest-free loans for up to 10 years.

By this time, though, Intel was already in advanced discussions with other countries. In March, it announced plans to build a $2.5 billion, 300mm wafer fabrication facility in the Chinese coastal city of Dalian.

As Mr Barrett visited Tindivanam, a small town in the southern state of Tamil Nadu, to open a healthcare project this week, the formal guidelines had still not been published, although ministers said they could arrive as soon as next week.

Intel, which employs more than 3,000 engineers at its research and development base in Bangalore, will continue to develop its software business and non-profit education and healthcare initiatives in India.

In 2005, the company said that it would invest more than $1 billion in India to 2010, adding to investment of more than $700 million in the previous decade.

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