Semiconductor policy to be implemented soon

New Delhi, Aug 10: The long awaited semiconductor manufacturing policy will be finally implemented this week, a move that is expected to attract huge Foreign Direct Investments (FDIs) from top global companies, including Intel.

According to sources in the telecom ministry, the initiative is focused on attracting investments for setting up semiconductor plants and other technology manufacturing industries.

Semiconductor companies seeking incentives which will be 20 per cent of the capital expenditure during the first 10 years will have to invest a minimum 550 million dollars, according to the policy.

Since the growth of the local electronics equipment hardware market is expected to accelerate rapidly the country is keen to attract electronics manufacturers, especially semiconductor makers to the region.

Participating companies will have to set up in Special Economic Zones (SEZs) to qualify for special tax incentives and tax holidays and the subsidy will be in the form of tax breaks and interest-free loans, according to the draft policy.

The cap on investment limit for manufacturing products such as storage devices, micro and nano technology products and organic light emitting diodes, as well as assembling such products, has been set at 220 million dollars.

The policy states that if the unit is located outside the zones, the incentive would total 25 per cent of the capital subsidy for the first 10 years while countervailing duty on capital goods would be exempted.

Announced by the former Telecom Minister, Dayanidhi Maran earlier this year, the policy can expect over 10 billion dollars of foreign direct investment. The Department of Information Technology will be working with state governments to develop cluster technology also. Many global companies including Intel have been eagerly awaiting this policy, sources said.

Last February, a joint study between ISA and Frost&Sullivan suggested the consumption of electronic goods would grow to 363 billion dollars by 2015 from the 28 billion dollar consumption in 2005. This would account for 11 per cent of the world market by 2015 from a mere 1.8 per cent in 2005.

Industry experts have forecasted that the country would use 36 billion dollars worth of semiconductors in 2015, and that the industry would become one of the largest employers, creating 3.6 million direct jobs and an additional 5.6 million related jobs, with a combined impact of nearly 28 per cent on India's GDP by 2015.

The policy also includes incentives for setting up manufacturing facilities for liquid crystal displays (LCD), organic light emitting diodes (OLED), plasma display panels, photo-voltaic cells, storage devices, solar cells and micro and nano technology products, including assembly and testing of these products.

The policy will also help in the manufacturing of cheaper mobile handsets, electronic goods and enable high-end features in automobiles.

The rising cost of chip development has made Venture Capitalists (VCs), who play a key role in this industry, direct their funds away from traditional regions of development to countries in Asia.

India has been the beneficiary of this trend with over 40 funds making their presence last year.

Studies show that VCs have invested 515 million in India in 2006, logging a near 74 per cent year-on-year growth. Of this, 70 per cent goes to the IT sector, which includes the semiconductor sector. Private equity investment in India stands at 7.5 billion dollars, of which 1.5 billion dollars is again in the IT and semiconductor segment.

UNI