India’s Economic Times has an ominous report on the country’s $35 Android tablet, which at one point was supposed to ship by January 15.

According to the report, there’s been a misunderstanding between the vendor and the Indian government over a bank guarantee. India’s financial rules require the guarantee — reportedly $13 million — in case the vendor doesn’t come through with the project.

Not surprisingly, that was a problem given that the components alone in each $35 tablet cost more than its selling price. One government source told the Economic Times that each tablet cost the vendor roughly $125 in parts. That’s a long way from the $35 manufacturing cost India was touting last year, and even further from the $20 that the government hoped to charge students after a subsidy.

To me, the problems seemed obvious all along. Even if the manufacturing costs were close to $35 per tablet, India’s plan to make the product profitable for vendors was a long shot, banking on sales to other countries at higher prices to offset the low cost in India. And if it’s not dirt cheap, it’s just another mediocre budget tablet.

India isn’t giving up yet. The government will issue a new tender and hopes to have the matter “sorted out in a few weeks,” according to a senior official, who also said that “The Sun will rise in 2011.” India could be looking to source components from suppliers in Taiwan and Korea, but again, it’s going to be tough, if not impossible, to hit the desired price point. Gartner analyst Vishal Bhatnagar told the Economic Times that $35 won’t even cover the cost of a screen and a microprocessor.

 
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