The central government has issued guidelines for the special incentives package for semiconductor fabrication, as well as other micro and nanotechnology industries in India. The package, announced on Friday 14 September, is expected to encourage multinationals like SemIndia to finalise investment plans.

The government says it will provide an incentive of 20 per cent of the capital expenditure during the first 10 years for units in special economic zones (SEZs). In the non-SEZ units, the incentives would be 25 per cent of the capital expenditure.

The guidelines come just days after the world''s largest chipmaker, Intel, blamed government delays for its decision to overlook India for setting up a chip manufacturing unit. The semiconductor policy, announced in March, is aimed at creating a high-tech manufacturing sector in India and is expected to attract investments of over $10 billion.

An official release said that an appraisal committee headed by the additional secretary in the Department of Information Technology (DIT), has been constituted to scrutinise applications.

For semiconductor manufacturing (wafer fabs) plants, the threshold net present value (NPV) of the investments would be Rs 2,500 crore ($618.35 million). The NPV of investments for making other products would be Rs1,000 crore ($247.34 million). Assuming that the projects have a 1:1 debt to equity ratio, the government is likely to restrict its own participation to around 26 per cent of the equity.

The policy covers LCD and plasma displays, storage devices, solar cells, photo-voltaics and nanotechnology products, including their assembly and testing. The deadline for the investments is 31 March 2010. The threshold value would be taken as NPV of investments made during the first 10 years of the project, and the discount rate will be nine per cent.

Companies would have the choice to decide whether they want incentives in the form of equity participation, or capital subsidy in the form of investment grant and interest subsidy. Investor will have to submit a proposal to the appraisal committee, along with the feasibility report.

President of the Indian Semiconductor Association (ISA) Poornima Shenoy was guarded in her response. "That the guidelines have been released is very extremely positive news, but we have to see the details before we make any comment," she said.