The Hindu Business Line : Finance Ministry for cap on sops to chip units

Curbing concessions
Excise duty paid on inputs would be Cenvatable
Each case to be evaluated by Inter-Ministerial Focus Group
Govt must have exit option when the project goes on stream

A FILE PICTURE OF A SEMICONDUCTOR UNIT AT MARAMALAINAGAR NEAR CHENNAI.

New Delhi , Aug 20

Even as the controversy about the package of tax incentives for setting up semiconductor manufacturing facilities in India is raging, the Finance Ministry is reported to have set the "ceiling" for Central Government concessions, over and above the benefits extended to such units under the current policies of Central/State governments.

Highly placed sources in the Government told Business Line that in a communication to the Department of Information Technology (DIT), the Revenue Department is reported to have recommended a raft of incentives.

Foremost is that the Government would take up equity stake to a maximum extent of 15 per cent of the total project equity (having due regard to the size of the project).

But this is to be decided on a case-to-case base, keeping the merits of each proposal in mind.

The Government should have an exit option at a suitable point of time in the future after the project goes on stream.

With regard to raising loans to the projects coming up for setting up units for semiconductor fab/assembling, testing & manufacturing facility, the sources said that there would be subordinate loans at Government securities rates of up to five per cent of the project cost, to be repaid in five equal instalments after principal loan has been fully repaid.

Imports of raw materials, components and capital goods would be at zero Customs duty, while excise duty paid on inputs would be Cenvatable against excise duty paid on the final product (wafers, semiconductors).

Finally, 100 per cent depreciation would be allowed in the year of investment.

The sources said that the Finance Ministry has reportedly informed the DIT that these incentives would define the "ceiling" for Central Government concessions, over and above the benefits already conferred on such units.

It is further contended that each case would have to be evaluated on merits by an Inter-Ministerial Focus Group to be set up under Secretary, DIT, comprising representatives of Planning Commission, Departments of Economic Affairs, Expenditure and Revenue in the Ministry of Finance and Department of Commerce to deliberate on such proposals, execute techno-economic surveys and resolve on the eligibility of proposals under the Policy.

It is also made abundantly clear that since the Finance Minister's Budget 2006 announcement included other electronic items, besides semiconductors, the policy regime for flat LCD/OLED/Plasma panel displays and storage devices would necessarily have to be different from semiconductors since the economics of production and marketing of these products are different.

Policy analysts said that India's share in world production of semiconductors is estimated to be less than 0.1 per cent.

Shift to products

The country's semiconductor industry had decisively moved from being design and software services-driven to one that could also develop products for the global market.

An MoU was signed in February 2006 between Semindia Inc and the Andhra Pradesh Government for establishing a centre in Hyderabad involving a total investment of $3 billion in phases.

Semindia had earlier signed an MoU with AMD for technology transfer to manufacture semiconductors in India.

Intel is in discussions to set up facilities in India entailing an investment of $600 million, while the first fab unit in the private sector in the country, promoted by NanoTech Silicon India (NTSI) at a cost of $3.6 billion, is coming up at Rajiv Gandhi Nano Technology Park, Hyderabad.

The sources said that as the package of incentives for investors gets delayed because of the simmering differences between the DIT and the Finance Ministry, it would put paid to the dream of making India a chip design and manufacturing hub as investors would not retain the same zest with which they began.

This is compounded by the fact that the announced projects have to go through financial closure, completion of plant in a couple of years and another four years to roll out products to compete in the global market.