The government may lower the threshold of investment required to qualify for capital subsidies under the modified Special Incentive Package Scheme (SIPS), meant to give incentive to hi-tech manufacturing. SIPS, part of the government?s Semiconductor Policy announced in September 2007, expired on March 31 and the department of information technology is now readying a modified version of the scheme. SIPS offered subsidy of 20% for manufacturing plants in SEZs and 25% for plants outside of the SEZs.

While the government may retain the same subsidy level in the modified version of the scheme, it may cut the threshold limit by 40-50% when it comes to ATMP (assembly, testing, marking and packing) units. More investments in ATMP units can kick start semiconductor and other electronic manufacturing in the country, the thinking goes. Some Asian countries have used ATMPs as a pull factor for starting a chip fab, sources said. FE had earlier reported that the government is likely to promote electronic manufacturing clusters as part of the modified SIPS ? a move that reflects growing concerns in government circles about the rising import bills of electronics.

The threshold for ATMP units under SIPS-I was Rs 1,000 crore. This may be reduced to Rs 500-400 crore in the modified version. The government is also looking at segments beyond semiconductors ? LED and LCD are two of them.

FE learnt that the department of IT has been in discussions with various industry bodies on the proposed threshold investments. A spokesperson from the India Semiconductor Association said that the ?DIT has been proactive in moving forward on updating the SIPS. ISA is working with DIT in this regard.?

Sources noted that although the intent of SIPS- I was good, the timing was not ? the financial meltdown in 2008 impacted the semiconductor industry, curtailing investments. SIPS, in fact, attracted more investments in solar PV manufacturing than in semicon. About 26 proposals were received envisaging investments of $48 billion as of March 2010. The government has given in-principle approval to 13 proposals; five applicants have reported financial closure for an amount exceeding $220 million. The total investment proposed by these five applicants over a period of 10 years is around $8.5 billion, sources said.

The modified SIPS is expected to be available for a period of 10 years compared to three years in the previous version. This would take care of the cyclical nature of the industry and give serious investors more time to plan, sources said.