Semiconductor Policy Notification  

The semiconductor industry and other high tech industries are characterized by specific constraints that challenge their viability. These are highly capital intensive and have to deal with constantly changing technology. It, therefore, becomes imperative on the part of the Government to create a conducive environment for manufacturing and offer a package of incentives comparable with other countries to attract global investments into the manufacturing sector as well as help bridge the viability gap due to lack of adequate infrastructure and eco-system. While this will involve an initial cost incurred by the Government to seed the manufacturing industry in the country, the return on investments by way of contribution to GDP will succinctly justify the incentives planned as a part of the Special Incentive Package for semiconductor manufacturing and other high tech industries in the country.

2.0 Special Incentive Package as indicated. The Special Incentive Package is as under
2.1 The investment will be for the manufacture of all semiconductors and eco-system units, namely displays, including Liquid Crystal Displays (LCD), Organic Light Emitting Diodes (OLED), Plasma Display Panels (PDP), any other emerging displays; storage devices; solar cells; Photovoltaic; other advanced micro and nano technology products; assembly and test of all the above products.
2.2 The Special Incentive Package shall be for state-of-the art technology.
2.3 In the case of semiconductor manufacturing (Fab units) products, the threshold Net Present Value (NPV) of investment will be Rs. 2,500 crore or US$ 566 million and above. The threshold NPV of investment in manufacture of other eco-system products will be Rs.1,000 crore and above. This threshold value shall be taken as the Net Present Value (NPV) of investments made during the first 10 years of the project life and the discount rate will be at the rate of 9%.
3.0 The Central Government or any of its agencies shall provide incentive of 20% of the capital expenditure (as defined in sub-paragraph 3.3) during the first 10 years for the units in SEZ and 25% of the capital expenditure for non-SEZ units. Non-SEZ units shall be exempt from CVD. The incentives, if any, offered by the State Government or any of its agencies or local bodies shall be over and above this amount.

Note: The customs notification exempting CVD for non-SEZ units will be issued     separately by the Ministry of Finance.

3.1 The period of 10 years shall be the first 10 years of the project life from the start of the project and not with regard to the start of any subsequent phase of the project.
3.2 The capital expenditure will be the total of capital expenditure in land, building, plant and machinery and technology including R&D. The cost of land exceeding 2% of the capital expenditure shall not be considered for calculation in this regard.
4.0 Any unit may claim incentives in the form of capital subsidy or equity participation in any combination of the following:

        1. Equity in the project, not exceeding 26%
        2. Capital subsidy in the form of investment grant and interest subsidy

The entire equity contribution will be taken towards the value of incentive package. There shall be an exit option, to be exercised by the Government, at a suitable point of time in the future, after the project goes on stream.
5.0 Those investors who choose equity as part of their incentive package shall be given such equity after the financial closure for the project and equity shall be released on a proportionate basis as equity is brought in by the promoters.
5.1 All other incentives shall be released after the end of the financial year in which the NPV of the total investment exceeds the threshold value.
5.2 Thereafter, the incentives shall be provided on an annual basis on the value of investments made during the year and be restricted to the first 10 years of the project life.
6.0 There shall be a ceiling on number of units - 2 to 3 'fab' units and 10 eco-system units.
The Special Incentive Package shall be available only up to 31.3.2010