India’s electronic goods industry is yet to evolve to meet domestic demands. A major reflector of the underdeveloped status of the industry is that electronics goods import is the third largest import item for the country and it is expected that total electronic imports may cross $200 bn by 2022 if the demand for electronic goods goes at the present rate. Given this backward status of the sector, the government launched an incentive scheme in 2012 called Modified Special Incentive Package Scheme (M-SIPS) to encourage investment and production in the electronic goods sector. The policy was aimed to create an indigenous manufacturing eco-system for electronics in the country.
But over the years, investment has not happened substantially into the sector. Hence the modifications to the scheme was made in 2015 and 2016 to enhance the level of investment by changing the various provisions of the scheme. The latest amendment tries to achieve the goal of ‘Net Zero imports’ in electronics by 2020.
Objective of the amendment is not only to attract more investments into the Electronics System Design and Manufacturing (ESDM) sector in India, but also to create employment opportunities and reduce dependence on imports.
The Policy covers all States and Districts for participation and gives them an opportunity to attract investments in electronics manufacturing. Following are the main features of the M-SIPS after the amendment made in 2016.
What is the scheme’s target group?
The MSIP scheme gives special incentive package to promote large scale manufacturing in the Electronic System Design and Manufacturing (ESDM) sector. Originally 29 electronic verticals were covered under the scheme and later it was expanded into other sectors after the 2015 amendment. ESDM products including telecom, IT hardware, consumer electronics, medical electronics, automotive electronics, solar photovoltaic, LEDs, LCDs, strategic electronics, avionics, industrial electronics, nano-electronics, semiconductor chips and chip components, other electronic components and EMS. Electronic units across the value chain starting from raw materials including assembly, testing, packaging and accessories of these category of products are included. The scheme also provides incentives for relocation of units from abroad to India.
What is the incentives to be provided under the scheme?
- The incentive under the scheme is in the form of subsidy for capital expenditure. The subsidy is 20% for investments in Special Economic Zones (SEZs) and 25% in non-SEZs.
- It also provides for reimbursements of CVD/ excise for capital equipment for the non-SEZ units.
- For some of the high capital investment projects like fabs, it provides for reimbursement of Central Taxes and Duties.
- The incentives are provided on reimbursement basis (means first investment has to be made by the unit to claim the subsidy).
- Units all across the manufacturing value chain are covered under the scheme. For each of the product category, an investment threshold is prescribed which an applicant has to incur for getting eligible for incentives. The investment threshold varies from Rs 1 Crore to Rs 5000 Crores depending upon the type of project.
- The incentives are available for a period of 5 years from the date of approval.
- The term of the scheme has been extended upto 27-07-2020.
Modification notified on January 31st, 2017
As per the amendment made after the Cabinet meeting chaired by Prime Minister Narendra Modi on January 17, 2017, certain changes have been made. Firstly, a revised time-period and incentive coverage is laid. As per the amendment, incentives will be given to applications received till 31st December 2018 or till total incentive commitment reaches Rs 10000 crore; whichever is earlier. This means that the total incentives or subsidy for capital investment is limited to Rs 10000 crore and it has to be provided by end March 2018. If the incentives provided crosses Rs 10000 crore before 2018 March 31st, a review of the scheme is to be taken by the CEO of NITI Ayog to decide on further continuation of the scheme. The incentives are limited to five years from date of approval. After receiving the incentives, the unit should undertake production for a period of at least 3 years. An appraisal Committee chaired by Secretary of Ministry of Electronics and Information Technology will approve projects under M-SIPS. A separate Committee headed by Cabinet Secretary and comprising of CEO, NITI Aayog, Secretary Expenditure and Secretary, MeitY (Ministry of Electronics and Information Technology) will be set up in respect of mega projects, envisaging more than Rs. 6850 crore ( or USD 1 Billion) investments.