Gujarat Semiconductor Policy 2022-27: What Are the Incentives?

The state of Gujarat has unveiled its Semiconductor Policy for 2022-27 in a bid to strengthen its electronics system design and manufacturing ecosystem and become part of the sector’s global value chain. The policy seeks to attract semiconductor fabrication units, display fabrication units, silicon photonics and semiconductor assembly, testing, marking and packaging facilities to the state. 

Unveiled on July 27, the ‘Gujarat Semiconductor Policy 2022-27’ offers a range of subsidies for entrepreneurs and investors in the electronics system design and manufacturing (ESDM) sector – on land, power, and water tariffs. The five-year policy aims to speed up project execution besides establishing a semiconductor and display fabrication (FAB) manufacturing base in the state.

Key objectives

The Gujarat Semiconductor Policy 2022-27 takes its lead from the four policies under the India Semiconductor Mission (ISM), announced by the central government last year, and intends to attract businesses and research and development (R&D) to its home ground.

Gujarat has become the first State to launch a dedicated policy for semiconductors and display manufacturing. The policy aims to generate about two lakh [200,000] jobs in the next five years. – Chief Minister Bhupendra Patel

To support this goal, the Gujarat government will be setting up a ‘Semicon city’ over 5000-10,000 acres at the Dholera Special Investment Region (SIR), which will serve as a dedicated manufacturing base for the semiconductor and display fab sector.

The Indian semiconductor market was valued at US$15 billion in 2020 and is projected to reach US$63 billion by 2026. However, the semiconductor and display manufacturing processes are technology and capital-intensive, involving high risks, long gestation and payback periods, as well as leaps in technology R&D.

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This naturally requires sustained and high levels of investment, which is why the Gujarat government has sought to create conditions conducive to the growth of a sustainable and robust semiconductor and ESDM base.

In rolling out the state policy, another stated goal is reducing India’s dependence on East Asia in the sector, particularly in the light of fluid geopolitics, black swan events like the pandemic, and acute supply shortages due to demand rise fueled by the growth of emerging markets.

Gujarat is among India’s most industrialized states and boasts of robust infrastructure and logistics connectivity, industrial estates and specialized industrial zones, leading educational institutions, and a strong talent base.

How will the Gujarat Semiconductor Policy 2022-27 support entrepreneurs?

The Gujarat Semiconductor Policy 2022-27 will facilitate eligible projects during the land allotment stage, expedite approvals processes, improve access to utilities like power, water, and gas besides industrial infrastructure, and offer a support package of fiscal incentives.

What is the eligibility criteria?

An eligible project is a project by any company / consortia / joint venture, which has applied to set up operations in Gujarat under the following Government of India schemes:
‘Scheme for setting up of Semiconductor Fabs in India’, ‘Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking, and Packaging (ATMP) / OSAT facilities in India’.

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The project undertaking must thus be approved by the ISM under the Ministry of Electronics and Information Technology (MeitY) to be considered eligible for the Policy subsidies in Gujarat.

The Gujarat government will support one semiconductor fabrication project and one display fabrication project under the Gujarat Semiconductor Policy 2022-27.

If multiple applications are received, the nodal implementing agency will appraise the cost-benefits of the undertaking. The Gujarat government will then evaluate on a case-by-case basis by considering the scale of investment, land availability, jobs creation, technology and economic advantages, and State budget scope.

Investors should note that projects approved under the Design Linked Incentive (DLI) Scheme of the central government will not be eligible for benefits under the Gujarat Semiconductor Policy 2022-27. They can however avail benefits under the Gujarat IT/ITeS Policy 2022-27.

What is the nodal administrative agency implementing the Policy?

The Gujarat government shall constitute a High-Powered Committee (HPC) for approving assistance to display FAB projects, semiconductor FAB projects, and projects with a proposed investment of INR 10 billion or more.

A State-Level Empowered Committee (SLEC) shall be constituted for approving assistance for projects with a proposed investment of less than INR 10 billion.

What is the structure of fiscal incentives?

Depending on the fulfilment of eligibility criteria whose conditions may be periodically amended, the eligible project/unit will be entitled to specified capital assistance and subsidies.

Capital assistance

• Capital assistance form the state government at the rate of 40 percent of the capital expenditure assistance from the central government. The eligible project undertaking shall be entitled to the incentive on the eligible capex made in a particular year.
• The nature and scope of the capex is defined under the Gujarat Semiconductor Policy. The period of computing eligible capex starts from the date of agreement between the applicant and Gujarat government, but the total period for computing capital expenditure will be determined by the central government.
• The capital assistance shall be disbursed over a five-year period from the year after the investment is made.

Subsidy on land procurement

• The Gujarat government shall provide 75 percent subsidy on the first 200 acres of land required for a FAB project. Over and above this, a 50 percent subsidy is available on additional land required for the FAB project or upstream/downstream economic activity or other projects approved under the ISM.
• Land subsidy will be provided only to projects set up in the Dholera SIR and based on the prevailing land price on the date of the allotment of the land as notified by the Dholera SIR Development Authority (DSIRDA).
• Land subsidy is provided only on land used for the core activities of the project.
• The Gujarat government has discretionary authority to approve land subsidy for projects set up in another location.

Stamp duty and registration fee

• All eligible projects shall be entitled for a one-time reimbursement of 100% of stamp duty and registration fee paid to the Gujarat government for lease/sale/transfer of land for the purpose of the project.

Utilities

Water

• All eligible projects will be provided access to good quality, potable water at the rate of INR 12 per cubic meter for a period of five years starting from commercial operations date (COD). The water tariff shall be increased at the rate of 10 percent on a year-on-year basis for the subsequent five years. Thereafter, the water tariff will be as per applicable rates set by the appropriate authority.
• If the eligible project decides to build a desalination plant in the initial five years, the Gujarat government shall offer capital subsidy of 50 percent of the project cost – excluding the cost of the land – and at a cap of INR 80 million per MLD (millions of liter per day or megaliters per day) of capacity being set up.

Electricity

• Eligible projects are entitled to a power tariff subsidy of INR 2 per unit for a period of 10 years starting from COD.
• If the project has a significant component of foreign direct investment (FDI) or is relocating from abroad, the Gujarat government reserves the right to provide power tariff subsidy at an enhanced rate for a limited time period to maintain globally competitive rates.
• All eligible projects can claim exemption from paying electricity duty as under the Gujarat Electricity Duty Act, 1958.
• Disbursement of power tariff subsidy shall be done in yearly instalments.
• The power tariff subsidy will not be applicable on energy consumed from captive power plant and energy consumed by desalination plant, if any.

Common facilities center and other basic infrastructure

• The state government will direct any of its agencies to construct or facilitate the construction of clean rooms, common facilities center, and / or other buildings as required by the project to commence its operations at short notice.
• If such a facility is to be constructed for captive usage of a project unit/entity, its cost of construction shall be deducted from the capital assistance payable to such entity.

What are the non-fiscal incentives offered?

Under the Gujarat Semiconductor Policy 2022-27, stakeholders will be supported throughout their investment cycle. The below table notes some key policy interventions.

For reference: Semiconductor schemes under the India Semiconductor Mission (ISM)

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