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Indian Cabinet approves Rs100 billion package for electronics sector

According to reports, the cabinet on Thursday approved a Rs10,000 crore package of incentives for makers of electronics products and components, in line with the government’s thrust on boosting electronics manufacturing in the country.

The so-called Modified Special Incentive Package Scheme (M-SIPS), prepared under the national electronics policy 2011, “is expected to create an indigenous manufacturing ecosystem for electronics in the country”, said a statement from the government’s press office.

Under the scheme, companies that invest in export-oriented industrial enclaves called special economic zones (SEZs) will get 20% subsidy on capital expenditure; those operating out of SEZs will get 25% support. Non-SEZ electronics units will be reimbursed countervailing and excise duty paid on capital equipment.

M-SIPS, which will be valid for three years, will give incentives for investments made within a period of 10 years from the date of a project’s approval.“For high technology and high capital investment units, like fabs, reimbursement of central taxes and duties is also provided,” the statement said. Fabs are semiconductor fabrication units that India has been trying to encourage.

The government has in the past year introduced several measures to boost electronic hardware manufacturing in the country.

If local manufacturing wasn’t backed by incentives, the cost of importing electronics could have exceeded India’s crude import bill; the country’s electronics imports may reach $300 billion by 2020, according to some estimates.

Electronics manufacturing in India is projected to grow at an annual pace of 22% to reach $125 billion (Rs6.8 trillion) by 2014 and $400 billion by 2020, according to government estimates. Together with the approval of the scheme for supporting dedicated electronic manufacturing clusters, M-SIPS will go a long way towards developing an ecosystem for manufacturing electronics products, said P.V.G. Menon, president of the India Semiconductor Association.

“Domestic companies face severe disability in manufacturing electronics systems in India,” which prevents them from competing with imports, he said. “Setting of specific threshold limits for individual product categories, and broad-basing of these categories, will also help bring much-needed clarity and focus to the Modified SIPS.”

The scheme is the modified version of a policy announced in 2007 that failed to get off the ground. Although the government received 26 project proposals involving a total investment of Rs2.29 trillion under the policy, very few companies had been able to demonstrate financial viability.

Companies such as Sterlite Industries (India) Ltd, Moser Baer Photovoltaic Ltd, Tata BP Solar India Ltd, PV Technologies India Ltd and KSK Surya Photovoltaic Venture Pvt. Ltd had proposed setting up units under the scheme. Projects proposed under SIPS were hurt by the global financial and economic crisis that took hold in 2008.

While the SIPS policy was notified in 2007, companies had to wait for the entire application window to close, only after which their proposals were to get scrutinized. Companies that had applied didn’t know for more than three years whether their proposal would be eligible for subsidies or not.

This clause has been done away with in the modified SIPS.

J. Satyanarayana, secretary of the department of electronics and information technology, said in an interview in May that a three-year window will be open for submitting proposals under M-SIPS.

“So there is a time-line for the last proposal to be taken up, otherwise it is open-ended. But the modified SIPS is more liberal in that sense and there is no cap on the number of proposals (that could get subsidy),” he said.

The high thresholds set in 2007 for investment proved to be a deterrent with many companies unable to tie up financing from banks because of the credit crunch that followed the collapse of Wall Street investment bank Lehman Brothers Holdings Inc. in September 2008.

The minimum limit for setting up semiconductor fabrication facilities to avail of incentives was Rs5,000 crore and for units manufacturing solar photovoltaic cells and microchips it was Rs1,000 crore.

“The threshold limits have been rationalized in the modified SIPS,” said Ajay Kumar, joint secretary, department of electronics and IT.

He added that thresholds had been set according to the 29 product categories, depending on their respective requirements. “We have tried to cover the full value chain through this policy,” said Kumar.

According to the National Electronics Policy 2011, the government is targeting revenue of around $400 billion by 2020 in electronics manufacturing from an investment of around $100 billion.

The policy, which is awaiting Cabinet approval, includes sops for setting up semiconductor fabrication units and industrial clusters for manufacturing electronics. It also specifies standards for electronics imports to stop spurious goods from entering the country. M-SIPS is a part of the overall policy framework.

The cabinet recently approved a proposal for electronics clusters for which the government will offer sops of Rs50 crore each to 200 clusters set up by manufacturers.

A proposal to reserve 30% of all government electronic procurement for companies that can add at least 25% of domestic value to products in the first year of the policy being implemented also received cabinet approval this year.

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