The government has been taking numerous steps to boost domestic manufacturing in the telecom space. One such initiative is the production-linked incentive (PLI) scheme for telecom equipment manufacturing. Under this scheme, around Rs 121.95 billion has been earmarked for the manufacturing of telecom and networking products. Moreover, incentives worth Rs 40 billion have been earmarked for the design-led manufacturing scheme.
Another initiative called Preference to Make in India focuses on promoting local suppliers who meet higher standards of value addition (or local content) for government projects/tenders. Meanwhile, the PLI scheme for mobile handset manufacturers has an earmarked funding of Rs 409.51 billion. This covers the manufacturing of both mobile handsets and specified electronic components.
Moreover, the government is considering a policy for boosting data centre investments, considering the key role that they are playing in supporting 5G roll-outs and the growth of the internet population. The policy aims to incentivise such investments in India and overcome any local drawbacks in terms of land, power cost or other factors.
Other measures such as the telecom sector reforms, the Smart Cities Mission, the BharatNet project and the Prime Minister Wi-Fi Access Network Interface project have enabled telecom equipment manufacturers to play a larger role in the evolving digital ecosystem.
PLI scheme for telecom equipment
First round
The first round of the PLI scheme for telecom equipment was launched in 2021 for a period of five years starting from 2021, with a financial outlay of Rs 121.95 billion. It offers a 4 to 7 per cent incentive on incremental sales for micro, small and medium enterprises (MSMEs), and 4 to 6 per cent on incremental sales for other categories. The scheme is expected to lead to an incremental production of around Rs 2.4 trillion, with exports of around Rs 2 trillion, within a time period of over five years.
So far, a total of 31 companies, comprising 16 MSMEs and 15 non-MSMEs (eight domestic and seven global companies), have been given approval.
Second round
During the scheme’s second round, several add-ons were included. To boost the designing of telecom products and to recognise and encourage research and development-driven manufacturing in India, an additional incentive of 1 per cent over and above the existing rate was conferred. Existing applicants were provided an extension of one year, along with the option to choose financial year 2022-23 as the first year for the incentive. Based on suggestions from stakeholders, 11 new products were added to the target segment list.
Industry reception to the add-ons has been positive, with a total of 32 applications (including 18 new companies) being submitted under the second round. These are currently undergoing approval. Of these 32 applicants, 22 are MSMEs, while there are five each from the domestic and global categories. Further, 17 of the 32 companies have applied as design-led manufacturers.
Current progress
So far, the schemes have generated investments worth over Rs 6.51 billion. Of these, Rs 3.85 billion worth of investments were from global companies, Rs 2.13 billion from domestic companies, and Rs 0.53 billion from MSMEs.
The schemes have also helped generate over Rs 123.63 billion worth of sales. Global applicants have witnessed over Rs 107.2 billion worth of sales, while domestic and MSMEs have seen over Rs 13.2 and Rs 3.23 billion worth of sales respectively. The schemes have also helped generate 9,729 jobs – 1,295 in the global category; 7,957 in the domestic category; and 477 in the MSME category.
Impact of the schemes
The PLI schemes have been useful for the telecom industry and helped position India as a manufacturing hub for telecom and networking equipment. This has prompted the global telecom industry to shift export production to India. A greater focus is now being laid on research and development, and on letting start-ups play a larger role in the ecosystem. The PLI schemes will also boost the creation of 5G intellectual property rights in India.
Upcoming opportunities
With the onset of 5G, the manufacturing landscape will also expand dramatically. 5G services, once rolled out, could catalyse increased demand for 5G and internet of things devices, helping India become a manufacturing hub for them.
This also demonstrates the need for stakeholders to invest in data centres in order to broaden the scope of 5G, as well as its penetration in the Indian economy. Further, it is becoming imperative to promote investment in advanced technologies for greater collaboration between 5G and the economy.
Based on a presentation by Kunal Chaudhary, Indirect Tax Partner, EY
