In a move that is perceived as a partial victory for the high-tech manufacturing sector in India and expected to attract investments of over $10 billion in the country, the central government today announced a host of incentives in its much-awaited semiconductor policy to buoy the semiconductor ecosystem.
The government will bear 20% of the capital expenditure during the first 10 years if a unit is located inside special economic zones (SEZ) and 25% in case of other units. The countervailing duty (CVD) on capital goods too would be exempted in case of units outside the SEZs. The policy further entails that for semiconductor manufacturing (wafer fabs) plants, the threshold net present value (NPV) of investments would be Rs 2,500 crore and the NPV of investments for manufacturing of other products would be Rs 1,000 crore.
Assuming the projects have a 1:1 debt to equity ratio, the government is likely to restrict its equity participation to around 26% of the equity portion. The remaining "will be in the form of interest-free loans, tax subsidies, and concession", according to Union minister for IT and communications, Dayanidhi Maran, who announced the semiconductor policy in New Delhi today. "It is up to the state governments to provide additional incentives," he added. Within India, Andhra Pradesh has been the most aggresive on this front.
Maran acknowledged "India lacks a full-fledged fab. Since we did not have a clear cut policy so far, we lost several companies to Vietnam and Israel."
He conceded he was in touch with the Intel Chairman Craig Barrett, adding:"It is for Intel (which chose Vietnam over India) to decide now. But this offer is valid only till 2010." An Intel spokesperson, however, said: "Once the comprehensive policy document is circulated, we will evaluate and respond."
Meanwhile, the Manufacturers Association for Information Technology (MAIT) Executive Director, Vinnie Mehta, said the Fab policy, along with the broadband initiatives, could result in an increase in sales of personal computers, ADSL modems, and set-top boxes in India.
Vinod Agarwal, Founder, Chairman & CEO, SemIndia, said: "This synergy will positively motivate global investors and semiconductor companies to come to India." The India Semiconductor Association (ISA) President Poornima Shenoy termed it an "extremely positive" policy. She added the single largest benefit is the grant of the SEZ status.
However, "if this is the best that the government has to offer, so be it. The move to offer incentives to state-of-the-art technology investments appears to be well-intentioned. Today, however, it's also technically viable to use refurbished equipment in older plants for manufacturing. The government should best leave the decision about (extending incentives to) older plants open to market forces and business requirements," opined M J Zarabi, former CMD of the Chandigarh-based state-owned Semiconductor Complex
. There are some concern areas too. India may be excited about semiconductor manufacturing, yet there have been two reports from J P Morgan and Gartner this month which have categorically stated the country should not go ahead with chip manufacturing since it's not economically feasible without a "huge subsidy" from the government. The government subsidy (expected to be around 22-25% of the total project cost) falls short of expectations. India still needs to compete with China, Ireland, Israel and Malaysia for tax breaks to semiconductor makers.
The government will bear 20% of the capital expenditure during the first 10 years if a unit is located inside special economic zones (SEZ) and 25% in case of other units. The countervailing duty (CVD) on capital goods too would be exempted in case of units outside the SEZs. The policy further entails that for semiconductor manufacturing (wafer fabs) plants, the threshold net present value (NPV) of investments would be Rs 2,500 crore and the NPV of investments for manufacturing of other products would be Rs 1,000 crore.
Assuming the projects have a 1:1 debt to equity ratio, the government is likely to restrict its equity participation to around 26% of the equity portion. The remaining "will be in the form of interest-free loans, tax subsidies, and concession", according to Union minister for IT and communications, Dayanidhi Maran, who announced the semiconductor policy in New Delhi today. "It is up to the state governments to provide additional incentives," he added. Within India, Andhra Pradesh has been the most aggresive on this front.
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The policy covers LCDs, plasmas, storage devices, solar cells, photo-voltaics and nanotechnology products and includes assembly and testing of these products. The domestic market for electronics goods is expected to reach $363 billion by 2015 and the domestic demand for semiconductors alone is predicted to touch $43 billion.
Maran acknowledged "India lacks a full-fledged fab. Since we did not have a clear cut policy so far, we lost several companies to Vietnam and Israel."
He conceded he was in touch with the Intel Chairman Craig Barrett, adding:"It is for Intel (which chose Vietnam over India) to decide now. But this offer is valid only till 2010." An Intel spokesperson, however, said: "Once the comprehensive policy document is circulated, we will evaluate and respond."
Meanwhile, the Manufacturers Association for Information Technology (MAIT) Executive Director, Vinnie Mehta, said the Fab policy, along with the broadband initiatives, could result in an increase in sales of personal computers, ADSL modems, and set-top boxes in India.
Vinod Agarwal, Founder, Chairman & CEO, SemIndia, said: "This synergy will positively motivate global investors and semiconductor companies to come to India." The India Semiconductor Association (ISA) President Poornima Shenoy termed it an "extremely positive" policy. She added the single largest benefit is the grant of the SEZ status.
However, "if this is the best that the government has to offer, so be it. The move to offer incentives to state-of-the-art technology investments appears to be well-intentioned. Today, however, it's also technically viable to use refurbished equipment in older plants for manufacturing. The government should best leave the decision about (extending incentives to) older plants open to market forces and business requirements," opined M J Zarabi, former CMD of the Chandigarh-based state-owned Semiconductor Complex
. There are some concern areas too. India may be excited about semiconductor manufacturing, yet there have been two reports from J P Morgan and Gartner this month which have categorically stated the country should not go ahead with chip manufacturing since it's not economically feasible without a "huge subsidy" from the government. The government subsidy (expected to be around 22-25% of the total project cost) falls short of expectations. India still needs to compete with China, Ireland, Israel and Malaysia for tax breaks to semiconductor makers.