Govt to subsidise only 22% of chip-fab capex

NEW DELHI: This could be a dampener for multinational and domestic players in the semiconductor industry planning a India base. The government may provide a direct subsidy of only 22% of the capital expenditure incurred to set up fabrication units. This is lower than the 25% subsidy proposed by the IT ministry as part of the incentive package for the semiconductor policy.

Early this month, the Union Cabinet gave its in-principle approval to the semiconductor policy and said that incentives would be worked out by the Cabinet Secretary and the Prime Minister���s Office. The Cabinet Secretary is understood to have recommended a direct subsidy of 22% of the capex.

However, a decision is yet to be taken on whether the subsidy would be over and above the incentives available under the SEZ scheme. The finance ministry is of the view that there is no justification in offering an investment subsidy over and above the existing benefits. The final decision will be taken after top-level consultations, said a government official.

The proposed policy pegs the threshold investment (for availing the incentives) at Rs 2,500 crore for semiconductor fabrication projects. For manufacture of high-tech products other than semiconductors, the threshold level for investment is Rs 1,000 crore. Any unit claiming incentives under the package can do so in a combination of 26% equity, investment grants and interest subsidy.

The IT department had proposed a direct subsidy of 25% of the capex in the first 10 years of the life of the project. The direct subsidy was in addition to other incentives which the industry would be entitled to under SEZs. The capex will be the total capital expenditure in land, building, plant machinery and R&D. The cost of land exceeding 2% of the capex shall not be considered for calculations.

A study by consultancy Frost and Sullivan says that India is the fastest-growing market for electronic products in the world with consumption expected to grow to $363 billion by 2015 from $28 billion in 2005. India will account for 11% of the global electronics market by 2015, compared to 1.8% in 2005. India will also consume $36 billion of semiconductors in 2015, or 6% of the global market.

neha.kohli@timesgroup.com