NEW DELHI, May 16 (Reuters) - Indian software firm Zoho

is planning a foray into chipmaking and seeking incentives from

the federal government, two sources with direct knowledge of the

proposal said, with one of them pegging the investment plan at

$700 million.

Zoho, established in 1996 and now headquartered in India's

Tamil Nadu, offers software and related services on subscription

to businesses in 150 countries, competing with the likes of

Microsoft ( MSFT ) and Salesforce ( CRM ).

It is the latest company to seek financial sweeteners from

the government to set up a chip fabrication plant.

Semiconductors are a key plank of India's business agenda,

with a $10 billion package in place to boost the industry as it

hopes to compete with countries such as Taiwan in a few years.

Zoho is proposing to manufacture compound semiconductors,

which have specialized commercial applications and are made from

alternatives to the more-commonly used silicon in chipmaking,

the two sources said.

The proposal is being reviewed by the panel that drives

India's chip initiatives at the IT ministry, they added. The

ministry has sought more clarity from Zoho on the customers it

intends to do business with, the second source said.

Zoho declined to comment, while the IT ministry did not

immediately respond to a request.

The first source, who said the company had estimated an

investment outlay of $700 million, said Zoho had also identified

a tech partner to help set up the operation from scratch,

without naming the firm.

In March, founder and CEO Sridhar Vembu said Zoho was

planning a chip design project in the southern state of Tamil

Nadu, without providing further details. Its plans to diversify

into chip manufacturing have not previously been reported.

Zoho made annual revenue of over $1 billion in the financial

year ended March 2023, according to media reports.

In February, India gave the go-ahead to construction of

three semiconductor plants worth over $15 billion by firms

including Tata Group and CG Power, with plans to manufacture and

package chips for sectors including defence, automobiles and

telecommunication.

India has estimated its semiconductor market will be worth

$63 billion by 2026.

(

Reporting by Munsif Vengattil in New Delhi; Editing by Mark

Potter

)