Date: 12/07/2012
M-SIP and EMC for electronics and semiconductor industry approved by the cabinet
The Union Cabinet has approved two key proposals for the growth of electronics manufacturing in India. They are:
1. Approval of the proposal to provide a special incentive package to promote large-scale manufacturing in the Electronic System Design and Manufacturing (ESDM) sector.
2. Approval of proposal to offer financial support for the development of Electronics Manufacturing Clusters (EMCs) as these EMCs would aid the growth of the Electronics Systems Design and Manufacturing (ESDM) sector, help development of entrepreneurial ecosystem, drive innovation and catalyze the economic growth of the region by increasing employment opportunities and tax revenues.
The special incentive package scheme is called the Modified Special Incentive Package Scheme (M-SIPS). The main features of M-SIPS are as follows:
1. The scheme provides subsidy for investments in capital expenditure - 20% for investments in SEZs and 25% in non-SEZs. It also provides for reimbursement of CVD/excise for capital equipment for the non-SEZ units. For high technology and high capital investment units, like fabs, reimbursement of central taxes and duties is also provided.
2. The incentives are available for investments made in a project within a period of 10 years from the date of approval.
3. The incentives are available for 29 category of ESDM products including telecom, IT hardware, consumer electronics, medical electronics, automotive electronics, solar photovoltaic, LEDs, LCDs, strategic electronics, avionics, industrial electronics, nano-electronics, semiconductor chips and chip components, other electronic components and EMS. Units across the value chain starting from raw materials including assembly, testing, packaging and accessories of these category of products are included. The scheme also provides incentives for relocation of units from abroad.
4. The scheme is open for three years from notification.
Approvals for incentives not exceeding Rs. 10,000 crores will be granted during the XII Plan period.
The projects with incentives of Rs 10,000 crores have potential to create employment for nearly 0.5 million persons.
The policy is expected to create an indigenous manufacturing eco-system for electronics in the country. It will foster the manufacturing of indigenously designed and manufactured chips creating a more cyber secure ecosystem in the country. It will enable India to tap on the great economic potential that this knowledge sector offers. The increased development and manufacturing in the sector will lead to greater economic growth through more manufacturing and consequently greater employment in the sector.
The main features of the proposed Electronics Manufacturing Clusters (EMCs) Scheme are as follows:
1. The assistance would be provided to a Special Purpose Vehicle (SPV) which should be a legal entity duly registered for this purpose. The SPV may be promoted by private companies, industry associations, financial institutions, R&D institutions, State or Local governments or their agencies and units within the EMC. The SPV should consider including an academic/research institution to be part of the proposed SPV for suitable academic-industry linkages.
2. The financial assistance to the SPV shall be in the form of grant-in-aid only. For Greenfield EMCs the assistance will be restricted to 50% of the project cost subject to a ceiling of Rs. 50 crore for every 100 acres of land. For Brownfield EMCs the assistance will be restricted to 75% of the project cost subject to a ceiling of Rs. 50 crore.
3. The scheme will be open for applications for five years from the date of notification.
4. This is a policy decision with no automatic financial commitment. The financial assistance under the policy would be subject to approval by the Competent Authority following due process.
The proposed scheme is expected to help flow of investment for the development of world-class infrastructure specifically targeted towards attracting investment in the ESDM sector.
Nearly 28 million persons are expected to be employed, directly or indirectly for the ESDM turnover to reach USD 400 billion. The policy covers all States and districts and provides them an opportunity to attract investments in electronics manufacturing.
CII has welcomed the Cabinet’s approval of financial support for setting up of Electronics Manufacturing Clusters (EMCs) and strengthening existing clusters. This will give a real boost to the Indian Information, Communication Technology and Electronics (ICTE) manufacturing industry, estimated at $30 billion.
According to Mr Vinod Sharma, Co-Chairman, CII National Committee on ICTE Manufacturing, “This approval, together with the proposed fiscal incentives envisaged in the draft National Policy on Electronics across the value chain through a Modified Special Incentive Package Scheme (M-SIPS), would go a long way in mitigating the disability costs in ICTE manufacturing. It would make the industry competitive, attract investments, generate employment, create additional revenue and lead to lesser dependence on imports.”
“The EMCs have potential advantages like increased productivity of the companies in the cluster, driving innovation, cutting down unproductive costs and reduction of costs through shared resources,” added Mr Chandrajit Banerjee, Director General, CII.
As per the CII press release, though this sector has registered a compound annual growth rate (CAGR) of about 15% in the last decade, India accounts for only about 1.5% of the global electronics production.
According to CII, the ICTE manufacturing sector faces several challenges due to inadequate supporting infrastructure in terms of availability and costs of power, time consuming logistics and logistics cost. In addition, the industry suffers from high transaction costs, and costs on account of high inventory levels due to dependence of supply chain on imports. It is estimated that adding value of 50% entails extra costs of about 8%.
The ICTE industry would significantly contribute in meeting the national objective of increasing the share of manufacturing sector in the GDP from the present level of 16% to 25% by 2022, said CII.
The share of ICTE production, which presently accounts for about 10% of the manufacturing GDP, can grow to 33% by 2022 and become the key driver for employment and manufacturing growth.
Countries with robust ICTE manufacturing bases such as China, Korea, Taiwan, etc, have systematically built excellent physical infrastructure and user friendly and simple policy framework and approval mechanisms. Low cost of funds, reasonable tax rates and a supportive government have encouraged its growth overseas.
ESDM covers complete eco of electronics which includes embedded systems and VLSI design, optoelectronics, and semiconductor fabs.
Sources:
1. pib.nic.in
2. cii.in