The onset of the Covid-19 pandemic and the disruption it caused in global supply chains has made self-reliance a key goal for most countries. In India too, the government has been focusing on building an Atmanirbhar Bharat and has undertaken a slew of initiatives in this regard. One such initiative is the production-linked incentive (PLI) scheme launched in 2020 to enhance domestic manufacturing in some key sectors to position India as a global export hub. Since its launch, the scheme has received an overwhelming response from both global and domestic manufacturers.

The most recent sector to join the bandwagon for the PLI scheme is the telecom sector. Recently, the union cabinet gave its approval to the PLI scheme for

telecom and networking products. The scheme, having a budget outlay of Rs 121.95 million, is a part of the umbrella scheme approved by the cabinet in November 2020 for implementation of the PLI scheme under various ministries/departments including the Department of Telecommunications (DoT). The government expects the scheme to result in an incremental production of Rs 2 trillion over the next five years and give India a strong foothold in the $100 billion worth telecom and networking products export market.

Key features of the scheme

The PLI scheme applies to core transmission equipment, 4G/5G equipment, next-generation radio access network and wireless equipment access, customer premises equipment (CPE), internet of things (IoT), access devices and other wireless and enterprise equipment that is, switches and routers.

The scheme, which will become operational from April 1, 2021 (once notified), aims to provide support to companies/entities engaged in the manufacturing of specified telecom and networking products in India. The eligibility will be further subject to achievement of a minimum threshold of cumulative incremental investment over a period of four years and incremental sales of manufactured goods net of taxes (as distinct from traded goods) over the base year 2019-20. The cumulative investment can be made at one go, subject to the annual cumulative threshold as prescribed for four years being met.

The scheme has a minimum investment threshold of Rs 100 million for micro, small and medium enterprises (MSMEs) with incentives ranging from 7 per cent to 4 per cent of incremental sales and Rs 1 billion for others with incentives from 6 per cent to 4 per cent over five years above the base year. While formulating the scheme, the government has acknowledged the fact that the MSME sector would need additional support and hence, an additional incentive of 1 per cent has been announced for such investors in the initial three years.

Applicants with higher investments than the specified threshold under the MSME and non-MSME categories will be selected through a transparent process. Companies qualifying under the scheme would be eligible for benefits that could go up to 20 times the minimum investment threshold, which would enable them to utilise their unused capacity.

Great expectations

By providing PLIs to core telecom and networking products, the scheme aims to offset the huge import costs of telecom equipment, currently exceeding Rs 500 billion. Through the scheme, the government expects the country to move towards self-reliance in terms of manufacturing telecom and networking products. The amount of incremental production under the scheme is expected to be around Rs 2.4 trillion, including exports of around Rs 2 trillion over five years. Further, domestic value addition is expected to increase gradually by incentivising large-scale manufacturing. Moreover, the provision of higher incentives to MSMEs will encourage domestic telecom manufacturers to become a part of the global supply chain. In terms of investments, the government expects to attract funds worth more than Rs 30 billion into the country. Additionally, the scheme is likely to generate 40,000 direct and indirect employment opportunities, and generate a tax revenue of Rs 170 billion from telecom equipment manufacturing.

Points to ponder

The PLI scheme aims to cover a diverse range of companies including MSMEs under its ambit and offer benefits to them. The inclusion of MSMEs in particular seems to be a welcome move to enhance their role in the telecom manufacturing ecosystem. However, as per industry experts, the gap between Rs 100 million and Rs 1 billion seems to be huge and might result in the non-qualification of certain companies. Further, the wide-ranging list of equipment which covers all kinds of telecom and networking equipment, IoT devices and other related items is another step in the right direction. This would widen the umbrella of products eligible for benefits under the PLI and help promote manufacturing activity in a wide range of products.

However, the key to achieving success under the scheme would be to ensure that all the elements are timely and rightly implemented by the government. Further, the government would need to ensure that the detailed guidelines under the scheme enable substantive value addition in manufacturing activities that are eligible for availing benefits under the scheme. A mere assembling of imported components or other forms of manufacturing which lead to little or no value addition to the product will not generate the kind of employment opportunities that the government expects to generate.

Moreover, while formulating guidelines for the scheme, the government needs to ensure that the guidelines offer enough room for the promotion of research and development (R&D) in the field of telecom manufacturing. This would warrant that employment generation is not just restricted to the low/medium skill group but also covers the ever-expanding highly skilled workforce. Further, it would help promote high-end telecom manufacturing.

Additionally, the government needs to consider the shifting global supply chain dynamics and ensure that the age-old issues plaguing the manufacturing sector such as land acquisition, labour reforms and lack of access to world-class infrastructure at reasonable costs are taken care of. Supplementing the PLI scheme with these measures will help bring India another step closer to becoming a world-class destination for telecom manufacturing.

The way forward

Net, net, the launch of the PLI scheme for the telecom sector seems to be a welcome move especially in the wake of increasing digitalisation. It represents the government’s well-timed intentions to build an “Atmanirbhar Bharat” and position India on the global telecom manufacturing ecosystem. In fact, the launch of the scheme has provided a renewed energy to telecom manufacturers, both domestic and global, who are now planning enhancement of their manufacturing capacities.

While the scheme is yet to be notified, industry reports suggest that the process is in the pipeline and will be complete soon. The notification of the scheme would elaborate on operational aspects such as application procedures, timelines and disbursements.

Once notified, the scheme would become operational beginning April 1, 2021 and usher in wide-ranging changes in India’s telecom manufacturing ecosystem. For one, it would provide the much-needed impetus to manufacturing of core telecom equipment along with IoT and 4G/5G equipment that would help propel the country into the next wave of technological evolution. Further, support under the scheme would help the county in augmenting its manufacturing capacity by attracting significant investments from global players and encouraging emerging domestic manufacturers to seize opportunities and become bigger players in the export market.

While it is a bit early to comment on the overall impact that the scheme would have on India’s telecom manufacturing space, one can only hope that the associated beneficiaries are able to leverage the support being offered by policymakers and can help transform India into a favourable manufacturing destination.

By Kuhu Singh Abbhi