THIS could be a bit of a dampener for multinational and domestic players in the semiconductor industry wanting to set up shop in India. The government may provide a direct subsidy of only 22% of the capital expenditure incurred for setting 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 the incentives would be worked out by the cabinet secretary and the prime ministerís 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. The finance ministry is of the view that there is no justification to offer an investment subsidy over and above the existing benefits. The final decision is yet to be taken after top-level consultations, according to a senior 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 equity not exceeding 26%, investment grants and interest subsidy.
The department of IT had proposed a direct subsidy of 25% of the capex in the first ten years of the life of the project. The direct subsidy was in addition to other incentives which the industry would be entitled to such as sops under SEZ. The capex will be the total capital expenditure in land, building, plant machinery and R&D.