DIT will market semiconductor policy

The much-touted semiconductor policy has received a lukewarm response so far. However, the Department of Information Technology (DIT) is hopeful that response to the proposals under the policy will pick up after the Budget announcements when it gets more time to market the proposals.

Till date, the DIT has received four proposals under the fab policy, including the LCD panel unit in India to be set up by Videocon, and three other proposals for photo-voltaic cell manufacturing units by Moser Baer ,Titan Energy Systems, and KSK Power Venture.

The four proposals amount to a total investment of Rs 30,000 crore. The government's target is at least $10 billion (around Rs 40,000 crore).

"The response to the policy has not been great but we expect it to pick up after the Budget," says a department official. "The department has been preoccupied with the upcoming Budget. Once it is over, we will have more time to promote the policy," he added.

Companies like Reliance Industries Ltd and Vedanta have also shown interest but are yet to make formal proposals, said the official.

SemIndia and Hindustan Semiconductor Manufacturing Corporation (HSMC) had also announced their plans to set up fab units in the country, entailing an investment of $3 billion and $4 billion respectively.

However, they have yet to make a formal proposal. Neither of the companies were available for comment.

Under the policy, the government will bear 20 per cent of the capital expenditure in the first 10 years if a unit is located inside special economic zones (SEZs) and 25 per cent in case of other units.

The countervailing duty (CVD) on capital goods would also be exempted in case of units outside SEZs. 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 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 participation to around 26 per cent of the equity.

Lack of proper marketing has been cited as a major reason for the slow response to the policy.

"There is a need to take this to other countries in a bigger way, for which there has to be a collective effort from the industry associations as well as the government," opines Vinnie Mehta of the Manufacturers' Association of India.

"The policy has provided good investment opportunities for the industry; a little more convincing is required," he adds.

"The industry players are probably looking forward to the Budget for cuts in sales tax and excise duties among others, before making their proposals," said the official adding, "more beneficial tax policies will also help us to promote and market this policy in a better way."

"We could do this through seminars, talks or better promotions in other countries to invite investments," he added.

Poornima Shenoy, president, India Semiconductor Association (ISA), is pleased with the initial response. However, she feels more needs to be done in terms of visibility of the semiconductor market in India.

"About 14 concrete inquiries have been made regarding the policy, of which 2-3 are in the chip manufacturing space. There is a need to take steps to spread awareness beyond the policy; potential investors want to know more about the Indian market," she says, adding: "ISA and CII have taken measures towards better marketing in Taiwan, but we need a partnership between the industry and the government."

"The chip manufacturers plan their investments at least four years in advance, so this will still take some time. The investments right now are mainly in ATMP (assembly-test-mark-pack) units and solar fabs, but chip manufacturing will also pick up" says Shenoy.

Many companies are still in the process of formulating their proposals which will take some time. Hence, after the Budget we hope to see more investments, she explains.