'Atmanirbhar' India – the vision for the telecom sector

Updated : February 27, 2021 05:14 PM IST

The government's commitment towards its flagship program 'Atmanirbhar Bharat' is reflected in the approval of the Production Linked Incentive (PLI) scheme, which promises an outlay worth Rs 12,195 crore for the telecom sector. This PLI scheme is being looked at as a welcome step by the industry, especially as the entire world is reviving from the aftermath of the COVID-19 pandemic.

India is witnessing a v-shaped recovery post pandemic and this initiative should boost investor sentiment and attract more investment into India. The recent PLI scheme for mobile handset was a huge success, with global players considering shifting their manufacturing base to India to cater to the domestic and export markets. There are similar expectations from this scheme and the government has left no stone unturned to make the scheme viable for the industry.

The scheme has been drafted in due consultation with stakeholders like manufacturers, industry leaders and associations and the Government has considered most of the industry’s needs while fixing incentive and minimum investment thresholds.

The backdrop

The telecom sector is the backbone of digital India and with telecom operators gearing up to launch 5G services in the country, it was imperative to build a domestic manufacturing ecosystem. Presently, 85 percent of the country’s demand for telecom equipment is met through imports. This is not in line with the vision of the Telecom Regulatory Authority of India (TRAI) of net zero import of gears by 2022. The government did take a few policy measures in the past which included a change in the import duty structure of telecom equipment, which resulted in some manufacturing activity in India, however the impact the said measure was not substantial.

What’s in store

The scheme, which will be effective April 1, seeks to provide financial aid to the tune of 4-7 percent to telecom gear manufacturers for a period of five years. Incentives will be based on incremental sales of manufactured goods over base year i.e. 2019-20 with a commitment for minimum investment in India.

The scheme proposes to offset huge import of telecom equipment worth more than Rs 50,000 crore and reinforce it with Made in India products both for domestic and export markets. Maximum turnover that shall be incentivised under the scheme could go up to 20 times the minimum investment threshold for that year. The incentive would contribute towards lowering local manufacturing disability, provide level playing field to India compared to compete destinations and making Indian products more competitive globally.

Benefits to MSMEs

This the first PLI scheme which also focuses to build Indian brands by tailoring the benefits for Micro, Small and Medium Enterprises (MSME) sector and bring them out as national champions. For the MSME sector, the scheme provides for its qualification, a lower minimum investment threshold of Rs 10 crore (as against Rs 100 crore for large players) and an additional incentive of 1 percent for the first three years.

Coverage

The government has considered all major telecom and networking products such as core transmission equipment, 4G/5G next-generation radio access network and wireless equipment, access and customer premises equipment, Internet of Things-access devices, other wireless equipment, and enterprise equipment like switches, routers etc. The coverage of the products like 5G, Internet of Things-access devices etc suggests that the Government is intending to incentivize manufacturing for the future.

Good timing

The scheme is also well – timed since most companies across the world are looking to restructure their supply chains with the objective to de-risk business operations. Companies are also contemplating relocating their manufacturing base in pursuit of low-cost manufacturing and labour arbitrage, with a pressing need for diversify to other countries. The fact that India has a cordial relationship with the world at large is our opportunity to act as a trusted partner and fill the void created by security concerns.

Outcome expectations

The government expects the scheme to reciprocate incremental production of Rs 2.4 lakh crore including exports of Rs 2 lakh crore over a period of 5 years, bring investment of more than Rs 3,000 crore and generate huge direct and indirect employment and taxes both. This shall also invigorate the demand for further development/relocation of component ecosystem to India which will further increase the intensity of manufacturing in India.

Next steps

The government has done its bit and now it’s time for the industry to put its best foot forward and avail the benefits under the scheme. Industry eagerly waits for detailed guidelines on the scheme as it would be important to see how benefits will be granted. It would be interesting to see the parameters on which the applicants would be evaluated, given that the maximum incentive per applicant and budgetary outlays are fixed. The government may also evaluate linking this to the Make in India guidelines released by DPIIT and requiring local content requirement for supplies to government. This linkage may provide relaxation to the successful PLI applicants and this will make an even stronger case for large global manufacturers to consider India as the manufacturing hub.

Kunal Chaudhary is Tax Partner – Indirect Tax Services at EY India. Views expressed are personal.

Published : February 27, 2021 05:14 PM IST

'Atmanirbhar' India – the vision for the telecom sector

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