New Delhi/Hyderabad The Union government will offer chip makers and plasma-panel display companies tax incentives and a subsidy on capital costs of semiconductor projects to attract big investments in such projects.
The policy, offering a three-year window for chip makers to set up manufacturing operations in India, will give semiconductor firms a 25% subsidy including tax breaks and interest-free loans. The incentives will run for 10 years.
The new rules are expected to stoke investments of up to $10 billion (Rs4,400 crore), said Dayanidhi Maran, communications and IT minister.
B.V. Naidu, managing director of SemIndia USA Inc., a company promoting a $3 billion unit near Hyderabad, said clarity on the Centre’s rules for semiconductor manufacturing would encourage investments.
Maran said he expected up to three “fabrication” units—facilities that create the raw material for chips—to come up in India. He said several multinational firms are interested, and they are welcome to come and invest.” He declined to name the companies.
India’s domestic $28-billion electronics market, spanning expenses on mobile phones, computersand other consumer goods and growing at 30%, has attracted global brands LG, Nokia, and Ericsson, besides manufacturing service companies such as Flextronics and Jabil to set up shop.
Chip-making rivals Intel and AMD lead a raft of semiconductor companies interested in setting up Indian plants to supply material and components to phone makers and consumer electronics firms.
A booming mobile phone market augurs well for the semiconductor plants. “A semiconductor manufacturing facility requires capital investment of as high as $3 billion to $5 billion. Such an investment does not make sense unless there is large scale of the manufacturing using semiconductors,” Ganesh Ramamoorthy, principal research analyst, Gartner India, told Mint.
India, the fastest growing market for mobile phone services, consumes over five million cellular phones every month; in 2006, about 65 million new mobile sets were sold in the country.
Funders said they would look at semiconductor investments after Thursday’s policy announcement. Bob Kondamoori, managing partner, Sandalwood Partners, said the venture capital community has been waiting for a focused policy—this policy will motivate more investors to look at India.
Shailendra Bhatnagar of Bloomberg contributed to this story.