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Date: 28-02-13

Budget 2013 highlights for electronics and semiconductor industry

The semiconductor fab gets special attention in India budget 2013. The chip makers/foundries who want to set up a semiconductor fab in India can now import equipments to make semiconductor chips at zero percent custom duty. Setting up a fab costs Billions of $s. The lion share of spending is in buying semiconductor manufacturing equipment. Its good news for companies who want to set up fab in India and also companies like Applied Materials, ASM Lithography, Tokyo Electron, KLA Tencor, Nikon and many semiconductor manufacturing equipment vendors.

The other areas of interesting announcements for electronics and semiconductor industry in budget 2013 (which is now called ESDM) includes:

A. Companies investing 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 per cent of the investment: Most of investment in high tech manufacturing benefit from this due to heavy investment required, mainly fab investors.

B. Duty on Set Top Boxes increased from 5 to10 percent: Promotes manufacturing of local set top boxes.

C. Duty on mobile phones priced at more than Rupees 2000 raised to 6 percent: Promotes manufacturing of smart phones in India.

D. Since in India lot of electronics companies fall in SME sectors, the budget announcements for SMEs in 2013 includes:
1. Benefits or preferences enjoyed by MSME to continue upto three years after they
grow out of this category.
2. Refinancing capacity of SIDBI raised to 10,000 crore.
3. Another sum of 100 crore provided to India Microfinance Equity Fund.
4. A corpus of 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring.
5. A sum of 2,200 crore during the 12th Plan period to set up 15 additional Tool Rooms and Technology Development Centres with World Bank assistance.
6. Ministry of Corporate Affairs to notify that funds provided to technology incubators located within academic Institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure.

Overall the budget 2013 is positive catalyst for ESDM sector.

On the tax structure issue industry body Manufacturers’ Association for Information Technology (MAIT) is not impressed. Commenting on the Budget 2013, J V Ramamurthy, President, MAIT said, “Though the Government has announced the National Manufacturing Policy that aims to increase the share of manufacturing in GDP to 25% within a decade, the budget has failed to reverse the inverted tax structure which has been impacting the industry for years now, making India a predominantly import dependent country.”

Reacting on the Budget, Mr. Amar Babu, Vice-President, and MAIT said that, “The key positive aspect was that the Government has aimed to enhance the ESDM industry by providing appropriate incentives for semiconductor industry, including zero customs duty on plants and machineries for setting up wafer fabs units in India, but it does fail to correct the inverted tax structure anomaly.”

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