Union budget 2010: Solar, UIDs all the way!

February 26, 2010

As expected, solar photovoltaics (PV) is the largest beneficiary of the UPA government’s union budget 2010, which was presented today by India’s Union Finance minister, Pranab Mukherjee. On India’s growth, he said that a 10 percent GDP growth rate is likely in the future.

Late last week, I had said that it would be a great surprise if solar/PV was not part of the budget, given the NSM. Well, it now has a major role, as do UIDs. However, as I expected, there is hardly anything for the semiconductor/VLSI industry segments, and definitely not what the industry had proposed. Apparently, semiconductor/VLSI is not yet a critical sector, and will need to wait for its time. Therefore, I am not surprised! It didn’t happen last year, and well, no change this year either!

Key budget highlights
* The plan outay for new and renewable energy has been increased by 61 percent from Rs. 620 crores to Rs. 1,000 crores. This is following the Jawaharlal Nehru National Solar Mission (NSM) announced last year, which aims for 20GW by 2022.
* Proposal to establish national clean energy fund.
* There are proposals for setting up solar and wind power projects in Ladakh region as well.
* Allocation for power sector doubled to Rs. 5,120 crores.
* Allocation of Rs. 1,900 crores for UAID scheme (UID projects).
* UID numbers are ready for take off. UID authority has been constituted, and it will issue the first set of UIDs by the end of this year.
* Smart cards extended to NREGA.
* The Unique Identification Authority of India to get an allocation of Rs. 1,900 crores.
*  An effective tax administration and financial governance system calls for creation of IT projects which are reliable, secure and efficient. IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, are in different stages of roll out. To look into various technological and systemic issues, the minister proposes to set up a Technology Advisory Group for Unique Projects (TAGUP) under the Chairmanship of Nandan Nilekani.
* The budget proposed to further simplify FDI.

New and Renewable Energy
* The Finance Minster proposed to increase the Plan Outlay for the Ministry of New and Renewable Energy by 61 percent  from  Rs. 620 crores  in 2009-10 to  Rs. 1,000 crores in 2010-11.
* To address the problem of energy deficiency in the Ladakh region of Jammu & Kashmir which faces extremely hard climate, the government proposes to set up solar, small hydro and micro power projects at a cost of Rs.500 crores.
* The Ministry of new and Renewable Energy (MNRE), which aims to develop and utilise new and renewable sources of energy fur supplementing energy requirements of the country in an eco-friendly and sustainable manner, has got a total Plan Outlay of Rs. 1,950 crores, which includes Rs.950 crores as IEBR in the annual plan for the year.  The following physical targets/activities have been set during the financial year:
* 2972 MW Grid-Interactive Power capacity addition from Wind, Small Hydro, Biomass, Power/Cogeneration, Urban & Industrial Waste to Energy and Solar Power; 142 MW eq. Off grid / Distributed Renewable Power Systems.
* Provision of basic electricity/lighting facility through SPV/other RE systems and devices, including DRPS in 1500 remote villages/hamlets; and Family type Biogass Plants of capacity of 0.30 million m2 (1.5 lakhs nos.).
* Deployment of Solar Water Heating Systems of 1.00 million m2; Promotion of Energy – efficient Buildings (1 million sqm. Floor area) and Development of Solar Cities.
* R&D activities on different aspects of new and renewable energy technologies; support to MNRE Centres /institutions and Standard and Testing; Renewable Energy Resource Assessment.
* Information, Publicity and Extension (IPE) of Renewable Energy systems; International  Relations; Administration and Monitoring including HRD and Training; Support to States, Public Enterprises and Industry  including HRD and training activities to be undertaken under Solar Mission.

Tax proposals
* GST to be rolled out by April 2011.
* Rs 1133 crores outlay for launch of GST.
* SARAL – II form for individuals ready for the coming year in a simple format in only two pages.
* Computerisation of commecial tax collection in states.
* Automation of central excise and service tax already rolled out.

Direct taxes
* Corporate tax hiked; MAT increased from 15 percent to 18 percent
* Current income tax slabs extended as follow:
Rs 1.6 lacs — nil
Rs. 1.6 lacs – Rs. 5 lacs – 10 percent
Rs. 5 lacs – Rs 8 lacs – 20 percent
Above Rs 8 lacs — 30 percent

Indirect taxes
* Under the NSM — concessional customs duty to machinery, equipment, applicances etc., required for setting up PV and thermal power units.
* Wind energy generators exempted from central excise duty.
* LED lights — central exicse duty reduced from 8 percent to 4 percent.
* To waive excise duty and solar and PV panels.
* Concessional 5 percent duty on set up of solar power unit.
* Excise duty on CFL halved to 4 percent.
* 4 percent duty on electric cars and vehicles.
* Mobile phone domestic production picking up. To encourage manufaturers of accessories, exemptions extended.
* Tax exemptions have been announced for equipment used in solar systems and wind energy system, LED lights, electric cars, cycle rickshaw, mobile phone components and certain medical equipment.

In detail, some of them are as follow:
* In pursuance of Government’s resolve to implement the National Solar Mission, there is a proposal to provide a concessional customs duty of 5 percent to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units. I also propose to exempt them from Central Excise duty. Similarly, ground source heat pumps used to tap geo-thermal energy would be exempt from basic customs duty and special additional duty.

* Wind energy has shown promising growth in the country in recent years. As a measure of further relief, it is proposed to exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.

* LED lights are staging a debut as a highly energy-efficient source of lighting for streets, homes and offices. Central Excise duty on these is being reduced from 8 per cent to 4 percent at par with Compact Fluorescent Lamps (CFLs).

* Full exemption from Central Excise duty was provided to electric cars and vehicles that offer an eco-friendly alternative to petrol or diesel vehicles. The manufacturers of such vehicles have expressed difficulty in neutralising the duty paid on their inputs and components. It is proposed to remedy this by imposing a nominal duty of 4 percent on such vehicles. It is also proposed to exempt some critical parts or sub-assemblies of such vehicles from basic customs duty and special additional duty subject to actual user condition. These parts would also enjoy a concessional CVD of 4 percent.

* With the subscriber base growing at 14 million per month, India is one of the fastest growing markets for mobile phone connections in the world. Domestic production of mobile phones is now picking up in view of exemptions from basic, CVD and special additional duties granted to their parts, components and accessories. To encourage the domestic manufacture of accessories, these exemptions are now being extended to parts of battery chargers and handsfree headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, 2011.

* Medical equipment, instruments and appliances are subjected to a very complex import duty regime based on several long lists that describe individual items. Multiple rates coupled with descriptions not aligned with tariff lines, result in disputes and at times prevent state-of-art equipment from getting the benefit of exemption. It is proposed to prescribe a uniform, concessional basic duty of 5 percent, CVD of 4 percent with full exemption from special additional duty on all medical equipment. A concessional basic duty of 5 percent is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty. Full exemption currently available to medical equipment and devices such as assistive devices, rehabilitation aids etc. is being retained. The concession available to Government hospitals or hospitals set up under a statute is also being retained.

* The manufacturers of orthopaedic implants have represented that their inputs attract a higher rate of duty than the finished product. I propose to exempt specified inputs for the manufacture of such implants from import duty.

* Cable transmission of infotainment is undergoing a transformation with the adoption of digital technology. The multi-service operators need to invest in “Digital Head End” equipment. To enable this, it is proposed to provide project import status at a concessional customs duty of 5 percent with full exemption from special additional duty to the initial setting up of such projects.

Service tax
* Export of services, especially in the area of Information Technology and Business Process Outsourcing, generates substantial employment and brings in foreign exchange. It is proposed to ease the process of refund of accumulated credit to exporters of services by making necessary changes in the definition of export of services and procedures.

Nothing for semicon/VLSI, components or electronics manufacturing!
There you have it! The union budget 2010 has lots of good news for new and renewable energy, solar PV and UIDs — all on expected lines. Perhaps, these are on the national agenda, as is telecom, and hence, they have rightly bagged pride of place in the budget document. One hopes the players in the solar PV field do not have much to complain after this!

However, there is no place for semiconductors/VLSI, components, electronics manufacturing, as of now, which is a bit of a surprise. At least, some thought should have been given to electronic components and electronics manufacturing, as these are the need of the hour as well. The budget has been quiet on these fronts! But, no point in pointing fingers at the budget — it has simply taken care of what’s critical and top priority in the national agenda! On that count alone, the budget scores 100/100! If there is no place for the other segments, it is simply because we don’t have enough success stories, nor a good track record, at least, not so far!

Is it because we lack a proper ministry for semiconductors and electronics? Partly, yes! Unlike these two segments, telecom, MNRE, IT, etc., have proper, functioning ministries. The IT and telecom industry segments have also been around much, much longer, and definitely have strong leaders. However, the MNRE is perhaps, more recent, but well, it has a clear national agenda in the NSM!

There will be a need to build a solid ecosystem around solar PV. I hope that happens, now that so many goodies have been allocated to the sector.  However, one wishes that a wee bit more could have been done for boosting local manufacturing of LEDs in India.

In fact, barring solar/PV and UIDs, which are on the national agenda, there is hardly anything else! Those, who may feel that these measures would be adequate to trigger electronics manufacturing in the country and help the country, could be in for a surprise. And well, solar PV NEVER was and is semiconductors, hence, it would be unwise to tag it so!

A few questions: How many Indian manufacturers will really benefit from these proposals? Okay, how many MCUs are being produced in India, by Indian companies, for smart cards? Is this really enough to increase the consumption of electronics in the country? Is the excise duty on LEDs enough to boost its manufacturing? How many Indian companies are currently producing LEDs? And, at end of the day, are, we as a nation, serious enough to consider electronics manufacturing important and nurture such companies?

These are all tough questions, for now, and there are many others. One hopes, and continues to live in hopes, that these questions would be answered adequately in the years ahead. But, before the budget answers these, the Indian industry itself needs to find solutions first to these questions, and then expect answers from any budget.

Overall, a good budget from the solar/PV and energy perspectives, but really down on electronics manufacturing, for now. Perhaps, we have to wait for some other time to see this segment get a real boost!

The verdict: those who wish to invest in India’s new and renewable energy sector, and especially, solar PV, the time is now!

  1. Monish
    February 26, 2010 at 8:32 am

    No surprise to see solar PV on top of the agenda.

  2. Mayank
    March 5, 2010 at 7:42 pm

    Hi Pradeep,

    I think its a great initiative on part of GOI. Panels are still out of reach for majority of buyers and any move towards alternative sources of energy will benefit India in the long term.

    Consider how much energy a 100 W solar panel will generate over its lifetime:

    Rated capacity: 100W
    Power generated (at 50% efficiency) = 50W (because of dusty environments in which our panels live in)
    Number of hours sunlight stays: average of 6 hrs per day
    Days with no cloud/smog etc: 200 a year
    Power generated over 25 yrs: 50x6x200x25=1.5 million Watts!!

    Even if you can store the power and use the power with 50% efficiency you will still clear 750 KW of power over 25 yrs. Is that a bad return for Rs 15000 of initial investment?


  3. March 5, 2010 at 7:45 pm

    I don’t quite agree! Solar is NOT semicon! It is a separate segment on its own! All that focus on solar is probably a way to hide away the lack of success in the semicon side of things.

    India started rather late in its quest to build semicon ecosystem — by 16 years at least… the best it can do is focus on fabless and design services.

  4. Hillol Sarkar
    March 5, 2010 at 7:47 pm

    I agree with Pradeep. We need lot of Investment for 22 nm Fab. This segment is ignored by GoI. It is like building steel. We need semiconduct as the basis for the infrastructure. G7 has it. GoI should have an organization MITI Japan. Semiconductor is used in every segment of the food chain. Now is the time to invest and make rapid progress in this field.

  5. Dr. MP Divakar
    March 5, 2010 at 7:48 pm

    Pradeep / Mayanka / Hillol,

    While I do have some general agreement with some of the points you raised, I also have some exceptions:

    1. I do agree Solar is the NOT the same as the mainstream semi when you look at the complexity of processes all the way to a finished product (chip packages in semi’s for example). How ever, many of the equipments and processes used in semi’s are also used in solar, not to mention the personnel and the industry players.

    2. I had a chance to attend Nikon’s LithoVision 2010 at San Jose last month. EUV which was first supposed to be available for the 22nm (half pitch node) is delayed, Nikon is planning to introduce it for the 16nm half pitch node. The 22nm node is going to be accomplished with immersion litho with double patterning but there is an acute shortage of metrology tools. And the masks are going to be quite expensive, in the millions of $$!! In the mean while, Intel is trying to push the 193nm litho tools to 11nm half-pitch nodes with double patterning. There was also a lot of talk about maskless processes for 15nm node. Google Lithovision 2010 if you need more info including EE times articles on the topic (suggested starting point!).

    3. The implication of foregoing point: it does take a lot of investment to go to the 22nm node. Utilization of this technology is mostly for the memory market with a smaller subset in logic products with integrated memory (mostly NAND/NOR flash). With so much glut in the memory market, ask yourself this question: does it make sense for the Indian semi sector to go for billions of investment for a low pay back (memory) product? Or, would it make sense to implement slightly older technology with a roadmap to evolve to future ones, a la the 193nm node (Intel’s plan) migrating to 11nm node (I am not saying this is going to be a whole lot cheaper either). The answer is quite simple, since much of India’s IP and value addition is in the logic sector.

    4. Let me take this argument to the next level (in crudeness of technology): why not go to larger node technologies and apply them to develop MEMS /NanoMEMS / OptoMEMS. This is one area where I see clear opportunity for India to lead, providing opportunities for multidisciplinary (EE / ME / process / system level) talents. The sensor market is growing to billions while we sit back and watch other countries (China / Taiwan / Korea) take the lead in product development and manufacturing. This is a golden opportunity for the GOI to drive the leapfrogging of technology in the country with relatively lower investments.

    5. I am not in any way diminishing the importance the solar -we need probably 100fabs or more to serve the growing needs of the country for alternative energy. I hope my friend Sathya Prasad (President, SEMI India) is following this discussion, he after all, led the activities in solar at B’lore before moving on to SEMI.

  6. March 8, 2010 at 10:49 am

    Several more interesting comments have been posted by readers on a LinkedIn Group for Semicon Professionals.

  7. Emily
    March 14, 2010 at 10:57 pm

    Love reading your blog, I usually find out random new facts.

  8. Chris
    May 1, 2010 at 5:29 am

    Great information! The bias towards Solar is a common thread, can more solar reduce government reliance on on traditional power generators. Obviously there’s winners and losers here with some industries missing out at the expense of solar.

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