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Malovika Rao
BANGALORE: Semiconductor industry has finally got the wheels it needed to take India to the elite league of mature global semiconductor markets. It could have been the case of “too little, too late" for the Indian semiconductor fraternity, but for the announcement of the much awaited semiconductor policy that was made a week before the Union Budget.
While the government is yet to spell out details of the full-fledged semiconductor policy, at the time this article was written, the semiconductor community in India has by and large welcomed the key steps announced so far.
The Indian Semiconductor Association (ISA) has termed the policy as a positive sign of the mindset transformation of the Indian government. On the other hand, some semiconductor players have been cautious in welcoming the Policy whole-heartedly. Despite the dilution of incentive (from 25-30% to 20%) the Policy has brought cheer by according SEZ (special economic zone) status, and exempting countervailing duty (CVD) for non-SEZ entities.
The race has begun
Chip Foundries require very large investments and world over they are supported by Govts. by providing capital and fiscal incentives. In the absence of semiconductor manufacturing unit, India is fully dependent on imports. On the other hand, India's neighboring Asian countries have already taken the leap. Taiwan has world-class leading-edge foundries; China is rapidly ramping up its semiconductor manufacturing capacity; and Korea and Japan already house major IDMs. In this race India is yet to have a leading-edge fab in the country. At present, almost all semiconductor components are being imported.
For semiconductor design, almost all major IDMs and fabless companies have their ODCs (offshore development centers) in India. System manufacturers and cell phone giants like Nokia and Samsung Electronics have also set up their plants in India. The leading EMS players like Foxconn Electronics and Flextronics have expanded their operations here.
According to the ISA-Frost & Sullivan report, total consumption of electronic equipment in India would reach Rs 15,986 crore by 2015 at a growth rate of 29.8% from just Rs 1242 crore in 2005. This would increase the industry's contribution to GDP from 2% currently to 12% in 2015. A policy framework was crucial for investments planning and to make the statistics realistic to achieve.
Policy outline:
SEZ incentive (in % of Capex) to fab and ecosystem units is 20%
Non-SEZ incentive is 25% plus exemption from CVD
Threshold Net Present Value (NPV) of investment for Fab unit is Rs 2500 crore and Rs 1000 crore for non-fab units.
In the Making
A key point is the granting of SEZ status. As per the Policy, the Government will bear 20% of the capital expenditure during the first 10 years for units located inside SEZs and 25% for those outside. The Policy does away with the CVD on capital goods, in case of units outside the SEZs.
For semiconductor manufacturing (wafer fabs) plants, the Policy proposes a minimum investment of Rs 2,500 crore. The same for ancillary plants would be Rs 1,000 crore. So assuming the projects have a 1:1 debt to equity ratio, the government is likely to restrict its participation to around 26% of the equity. The remaining will be in the form of interest-free loans, tax subsidies, and concessions.
The Policy has a special incentive package meant for the manufacturer of all semiconductors, displays including Liquid Crystal Displays, Organic Light Emitting Diodes, Plasma Display Panels, and any other emerging displays, storage devices, solar cells; photo voltaics; other advanced micro and nano technology products; assembly and test.
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