Cadence's pre-budget recommendations for Indian semiconductor industry

Jaswinder Ahuja, Corporate Vice President & Managing Director, Cadence Design Systems, India:

BANGALORE, INDIA: The core issues that we feel should be addressed in the 2010-2011 union budget centre around semiconductor design, high-tech manufacturing, measures to promote domestic electronics manufacturing, encouraging pre-competitive research, and amendments to tax and duty structures.

At a high level, the recommendations aim at extending some of the sops that already exist by five years, providing funding/grants and tax breaks, instituting measures to encourage electronics manufacturing for the domestic market and fostering research in technology and innovation through funding and other support.

Favorable policies addressing these areas will support the domestic semiconductor industry to compete aggressively in the global market, as well as encourage the growth of the local market.

The India Semiconductor Association (ISA) has submitted a memo to the Government of India outlining its recommendations. Inputs for this memo were taken from all members, including Cadence. A few of the major recommendations are below:

Semiconductor Design
* Initiatives to promote innovation in R&D and product design, with an emphasis on creating local IP.
* Incubating Indian start-ups with capital, subsidies, STPI/SEZ benefits and tax incentives.
* Extension of fiscal benefits under the STP scheme until 2015.
* Alignment of Service Tax with Excise Duty / CVD
* Quick and judicious framing and announcement of safe harbour rules and framework for advance pricing agreements. The GOI had announced the intention to formulate safe harbour rules and allow advance pricing agreements in order to reduce the scope for arbitrary assessments and claims and avoid unwarranted transfer pricing disputes. We encourage GOI to expedite the publication of the draft rules and framework.

Semiconductor Policy
* Extension of the semiconductor policy to 2015.
* Lower the threshold limit for ATMPs and other ecosystem units. These areas form a critical part of the value chain of high-tech manufacturing, and the current investment limit of $500 million is a deterrent for units involved in ATMPs, optical LED, storage devices, LCDs, FPD, photovoltaics, fuel cells, etc.
* Amendment to the rule about financial closure commitment to allow for flexibility in the time allotted to submit legally binding financial closure documents.
* Release of incentives to be advanced so as to provide investors with funds at the early stage of project setup, when the requirement for funds is high.

Promoting domestic electronics manufacturing
* Establish a National Electronics Mission, which will serve as a nodal agency between the electronics industry and the PMO.
* Promote existing electronics manufacturing clusters (such as Sriperumbudur, Noida, etc.) and create new ones.
* Encourage products specifically designed for India.
* Create funds for R&D and value added manufacturing.
* Rationalization of tax structure.
* Promote skill development.

Tax and Duty Structure
* Continuation of excise duty/CVD rates announced in the Fiscal Incentive Package at 8 percent on all electronics products.

Encouragement of pre-competitive research
* Offer R&D grants, tax rebates/credits and seed fund to support technology research, innovation and collaborative industry/academia research.
* Facilitate setting up of “Centre for Research in Embedded Systems and Semiconductor Technology” (CREST).