Budget may offer production incentives for fabless chip cos

The Union Budget 2020 may unveil a scheme on production linked benefits to attract hi-tech manufacturing in semiconductors, and microprocessors to India, apart from giving tax incentives to solar electric charging infrastructure, computers, and servers for its thrust in manufacturing of global products to reduce imports.

To make it look more attractive to MNCs to opt for domestic electronics manufacturing  in India, the Budget may dish out production-linked subsidies for companies involved in semiconductor fabrication. This is aimed at inviting global semiconductor, and microprocessor companies to set up plants in India.

Earlier also, the government had announced schemes for setting up semiconductor plants in the country.

The National Policy for Electronics, 2019, argues for special support for developing core competencies in the strategic sub-sectors like fabless chip design industry.

The government could provide tax incentives to high-tech manufacturing plants in the fields of solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computers, servers, and laptops.

For 'Make in India', there may be investment-linked income tax exemptions under Section 35AD of the Income Tax Act and other indirect tax benefits.

Many global semiconductor companies such as ARM, Qualcomm, Intel, Cadence and Texas Instruments have set up design and software development infrastructure here but per se, chip manufacturing plants are still elusive for India.

Intel, AMD and ARM for microprocessors, and Qualcomm, Samsung and MediaTek are the names in this segment globally who also cater to the telecom segment and their chips are imported by Indian companies.

The Indian requirement for chips are completely met through imports. The Indian semiconductor component market is expected to be worth $32.35 billion by 2025, growing at a compunded annual growth rate of 10.1 per cent between 2018 and 2025, according to the Indian Electronics and Semiconductor Association (IESA), an industry body.

China, on the contrary, is building a homegrown chip programme, eyeing adoption of local semiconductors in 70 per cent of its products by 2025, up from 16 per cent currently.

In last few years, the Indian government has launched a slew of schemes to boost local manufacturing of electronic goods. Total production of electronic goods in value terms more than doubled from $31.2 billion in FY15 to $65.5 billion in FY19, led by mobile phones, shows data from the Reserve Bank of India's report.