Ritu Jha-
The Indian consulate general in San Francisco held an event to educate the diaspora about the country’s policies and tax incentives to boost the ‘Make in India’ program.
The event last month, organized with the Institute of Chartered Accountants of India San Francisco (ICAI San Francisco), highlighted the government’s plan to promote infrastructure and semiconductor manufacturing in India. But longtime investors and people who deal with taxes say more work is needed to sweeten the deal.
Consul General Dr. T.V. Nagendra Prasad delivered the keynote highlighting the government of India’s $ 1.6 billion Production Linked Incentive (PLI) scheme for the electronics manufacturing sector as a part of Atmanirbhar Bharat 3.0 package. He said the scheme extends to IT hardware, including laptops, tablets, all-in-one PCs and servers. The PLI scheme aims to generate 40,000 jobs and $26 billion in exports in the next five years.
Prasad told indica he brought in experts to address the many he got from people about policies and taxation involved with the Make in India program. Also, he said, a lot of work is going on in India that involves semiconductors and which is attracting investors.
Saurabh Gaur, joint secretary, electronics and IT, said one item in the Make in India initiative, Digital India, has mustered 750 million internet users and 1.2 million mobile subscriptions.
He said the government is offering about $30 billion support to make India a global hub for electronic manufacturing, with incentives linked to production and capital expenditure, and the development of electronic manufacturing clusters.
Stressing on the development of semiconductors, Gaur said that under the Silicon-India program, the government is offering almost $10.20 billion in support, expecting India’s semiconductor manufacturing will earn $130 billion by 2030, and corner 10 percent of the semiconductor market by 2030.
He said under the government is offering up to 50 percent for semiconductor and display fabrication units, 50 percent for design-linked incentives, and 30 percent on capital expenditure investment for setting up infrastructure for compound semiconductors, silicon photonics, sensors and more.
He said India, which has 3.3 percent of the global market, could get to 10 percent of it by 2026.
“India has 50,000 design engineers and we urge people in the [Silicon] Valley to come back and set up their own design companies in India,” Gaur said. “In return, we would provide reimbursement of manpower cost for electronic design automation (EDA) chips, prototyping of silicon deployment, and offer help in the product getting sold… [For] radio frequency identification (RFID) memory chips we are going to offer support and help in deployment through demand aggregation.”
Under the scheme’s Product Design Linked Incentive, approved applicants will get the support of up to 50 percent of the eligible expenditure subject to a ceiling of Rs 15 crore ($2 million) per application. This includes expenditure relating to design, development, testing, fabrication, validation, prototype development, product development, filing of intellectual property rights, manpower costs, etc.
The Deployment Linked Incentive provides 4-6 percent sales over five years, subject to a ceiling of Rs 30 crore ($4 million) per application will be provided to the approved applicants whose semiconductor design for integrated circuits (ICs), chipsets, system on chips (SoCs), systems and IP cores, and semiconductor-linked design are used in products.
The government said that under the scheme, the government will also preferentially purchase products from semiconductor fabs set up in India.
Sujoy Bose, CEO, National Investment and Infrastructure Fund of India, said, “We have created a large infrastructure fund and come up with a plan where the government will be investing 49 percent; 51 [percent] capital comes from a combination of domestic financial institutions.”
In addition, he said, it will be helped by inputs from two sovereign funds from Singapore and Abu Dhabi. four large pension funds, and the U.S. International Development Finance Corporation.
Bose said the Indian government has established a fairly stable regulatory framework and earmarked $40 billion for the projects.
Dinesh Kanabar, CEO, Dhruva Advisors, said that other than for a few things, such as single-brand retail and pharmaceutical firms, foreign investment is virtually automatic.
Kanabar said new investments had led to 40-plus unicorns (companies worth over $1 billion) and that the startup industry has come of age. He said that at one time taxes hampered startup growth, but added that the Indian capital market is very robust today.
Ankur Jain, founder, Emergent Ventures, who has invested in Indian startups, pointed out that there was a lot of red tape to traverse while doing business in India.
“Any little change requires huge paperwork. That significantly could be made easier,” Jain said. “Any time you make any investment it requires a new valuation…”
He told indica, “Trying to do business in India (especially with Indian banks) has often required onerous paperwork. For example, they ask a lot of documents to be notarized. This is time-consuming and expensive to get done in the U.S. They request a physical stamp. Why is this relevant today? They request documents on a letterhead. Again, why is this even relevant today? They expect the physical submission of documents and physical signatures. This becomes onerous to transact.
“In the US, many banks and other transactions can be done by sending scanned copies of signed documents or electronic signatures,” Jain said, going on to discuss the constant requirement for valuation certificates.
“This adds significant time and expense and makes the process tedious,” he said. “Other jurisdictions, such as the U.S., do not have such requirements. Any transfer of securities to an international investor involves a lot of submissions and paperwork (e.g. Foreign Currency Transfer of Shares (FCTRS) to the Reserve Bank of India). Banks ask for lots of documents as well.”
Asked about solutions, he said, “If an international VC fund has any investors from India, it is disallowed from investing in Indian companies… Removing this restriction will allow more funds to invest in Indian companies.” He also pointed out that the U.S. does not tax capital gains for non-resident investors. India could consider doing the same, he said.
Nilesh Shah, a member of ICAI management committee San Francisco Chapter who moderated the event echoed as Jain told indica, “Captial Gains taxation regime needs to be uniform in both United States and India. There are too many disparities in how Captial Gains are calculated and taxed. This will be welcome for investors in both India as well as the United States.”
Kislay Banka, CPA partner at The Chugh Firm, asked the experts who came on Zoom calls why India charges transfer prices between 15 and 20 percent.
He told indica it is hard for a loss-making company in the U.S. to pay India 15 percent of the profit and pay taxes.
“Why not charge 6.7 percent…? India will make money,” he said.
Welcoming incentives to boost manufacturing, Banka said, “I think this is a great opportunity, and India is booming.” Still, he, too, felt that paperwork is an issue.
“In India people take advantage [of the system],| Banka said. “There is a trust issue … So the government is little careful … A lot a new thing we see online, like filing taxes and refunds, will come automatically.” Given the changes needed, he said, the next national budget would be interesting to see.
