Incentive Schemes for Manufacturing of Electronics/Electronics Components/Semiconductors

Incentive Schemes for Manufacturing of Electronics/Electronics Components/Semiconductors

The Ministry of Electronics and Information Technology has issued notifications on 01 April 2020 to introduce two incentive schemes for companies engaged in the manufacture of electronic products.

1. Production Linked Incentive (‘PLI’) Scheme – This scheme focuses on providing incentives of 4% to 6% on incremental sales to eligible companies

2. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (‘SPECS’) – This scheme focuses on providing incentive of 25% of capital expenditure made by eligible entities

Key features of these Schemes are summarised below:

The Production Linked Incentive (‘PLI’) scheme

• Objective: PLI scheme aims at providing impetus to the indigenous manufacture of electronic goods/components under the Make in India program of the Government.
• Target Segments: The PLI Scheme is applicable to companies engaged in the following segments only:
  • Mobile phones
  • Specified Electronic Components, which are listed below:
    • SMT Components
    • Discrete semiconductor devices including transistors, diodes, thyristors etc.
    • Passive components including resistors, capacitors etc. for electronic application
    • Printed Circuit Boards (PCB), PCB laminates, prepregs, photopolymer films, PCB printing inks
    • Sensors, transducers, actuators, crystals for electronic application
    • System in package (SIP)
    • Micro/Nano-electronic components such as Micro Electromechanical Systems (MEMS) and Nano Electromechanical Systems (NEMS)
    • Assembly, Testing, Marking and Packaging (ATMP) units
  • Quantum of Incentive:
    • Eligible companies shall receive incentive at the rates (mentioned in the table above) on the incremental sales over base year (base year being FY 2019-20) of goods which are manufactured in India (covered in the target segment).
    • Further, the maximum incentive received by every company shall be subject to ceiling limit, which shall be decided upon by the Empowered Committee
  • Eligibility criteria:
    • The scheme is applicable to companies, registered in India, engaged in the manufacture of the above-mentioned Target Segments in India (including ‘Contract Manufacturers’)
    • Eligibility under the PLI Scheme shall not affect eligibility under other schemes, and vice-versa
    • The eligibility is subject to cumulatively fulfillingthe following threshold limits, in relation to Incremental Investment and Incremental Sale of Manufactured Goods (in the Target Segment):

¹ For eligibility, all Incremental Sales of Manufactured Goods (covered under Target Segment) irrespective of invoice value to be considered

² Domestic Company above-mentioned is as per the FDI Policy, 2017- Domestic company is a company owned by resident Indian citizens. A company is owned when more than 50% of capital is beneficially owned by Indian citizens or Indian companies which are ultimately owned and controlled by resident Indian citizens

• Tenure of the Scheme:
  • This incentive is offered to eligible companies for a period of 5 years subsequent to base year
  • The application for the scheme shall be initially opened for a period of 4 months, starting from 01 April 2020
  • Based on the response received from the industry, the Ministry may consider reopening the application, in which case, the applicants shall be eligible for incentives only for the balance period of the tenure of the Scheme

Recently, the GOI has taken certain measures to provide impetus to domestic manufacturing in this sector such as:

1. Reduction in income tax rates

2. Increase of customs duty rate on components of mobile phones

3. Providing an exemption from basic customs duty on imports of notified parts/inputs used for manufacture of certain electronics

This PLI Scheme incentive will act as an impetus for growth of domestic manufacture of electronic products/ components in India. This scheme is likely to attract investments in the domestic electronic sector and enable domestic manufacturers to deal with rapid changes in technology. Therefore, it is important for the business houses to evaluate their business plan in light of the above scheme.

https://meity.gov.in/writereaddata/files/production_linked_incentive_scheme.pdf

Scheme for Promotion of Manufacturing Electronic components & Semiconductors (‘SPECS’)

• Objective:

To strengthen the electronics manufacturing ecosystem in the country

• Eligibility:

The SPECS Scheme will be applicable to investments in new units as well as expansion of capacity/ modernisation and diversification of existing units by any entity registered in India

• Incentive under SPECS:
  • Incentive of 25% on capital expenditure to units making investment for eligible goods in the form of reimbursement
  • Incentives, if any, by State Government, or any of its agencies or local bodies shall be available over and above the incentives under the SPECS scheme
  • Applicant shall also be eligible to take benefit under any other scheme of Government of India except M-SIPS scheme for which investment has been committed and incentives have been claimed
• List of eligible goods for incentive along with Minimum Investment Threshold:

• Capital expenditure eligible for incentive:
  • Total expenditure in plant, machinery, equipment, associated utilities and technology, including for Research & Development (R&D)
  • Total value of refurbished plant, machinery and equipment (including for associated utilities and R&D), whether imported or domestically procured, not exceeding 20% of the total eligible plant, machinery and equipment (including for associated utilities and R&D)
• Tenure of the scheme:
  • The SPECS will be open for applications initially for 3 years from the date of notification
  • Incentive will be available for investment made within 5 years from the date of acknowledgement of the application

https://meity.gov.in/writereaddata/files/scheme_for_promotion_of_manufacturing_of_electronic_components_and_semiconductors.pdf

The manufacturing of electronic components and semiconductors is capital intensive and must deal with constantly changing technology. A vibrant electronic component manufacturing ecosystem is vital for the overall long-term and sustainable growth of electronics manufacturing in India and to achieve net positive Balance of Payments (BoP).

The above content is summarized for ease by author, for detailed guideline and process, the ministry link as give above to be followed.