The government has hailed the Aakash tablet as an achievement of Indian frugal engineering that would end the digital divide in a country where only one in every 10 of its 1.2 billion people use the Internet.
Products such as Apple Inc's iPad are beyond the reach even of many in the fast-growing middle class. The locally assembled machine has a cost price of around $50 and was to be sold to students by the government for $35.
But only 10,000 units have been shipped since October. The relationship between the device's manufacturer, DataWind, and a government research institute soured amid complaints by test users that the processor was too slow, the battery life short and the resistive touch screen hard to use.
The government's Human Resource Development Ministry is due to launch a new tender in the next few weeks to seek partners to build the tablet - a process that could see DataWind dropped.
"It is not automatic that because you have done phase one you will do phase two," said a senior official at the ministry with direct knowledge of the project.
Datawind won a contract last year to make 100,000 units for the government and it was thought likely it would make the additional 1 million units called for in the second phase of production. But it had lost its first-mover advantage and would face renewed competition for the contract, the official said.
"The feeling is that sufficient interest has been generated to get better specifications at the same or a lower price," added the official, who declined to be named.
A small London-based company, DataWind developed the tablet with the Indian Institute of Technology. The company said the institute had changed the specifications late last year and now wanted a device that could meet U.S. military durability requirement for the same rock-bottom price.
"Among other things that requires the device to take 4 inches an hour of sustained rain," DataWind CEO Suneet Singh told Reuters.
"We objected to it and the project has been on hold since then, we are working with the ministry to get that resolved," Singh said after meeting with ministry officials in New Delhi on Tuesday.
India has a reputation for creating affordable products that are easy to use and sturdy enough to handle its rugged environment -- from Tata Motors' $2,000 Nano car to generic versions of pharmaceuticals.
But despite being a leader in software and IT services, India trails fellow BRIC nations Brazil, Russia and China in the drive to get the masses connected to the Internet and mobile phones, a report by risk analysis firm Maplecroft said last year.
The number of Internet users grew 15-fold between 2000 and 2010 in India, according to another report. Still, just 8 percent of Indians have access. That compares with nearly 40 percent in China.
The Aakash is aimed at university students for digital learning via a government platform that distributes electronic books and courses.
DataWind says it is receiving tens of thousands of orders daily for a commercial version of the tablet with a built-in GPRS modem that is due to be launched this month for 2,999 rupees.