Concerted efforts by the government and businesses to digitalise the economy and ensure last-mile connectivity are pushing the demand for affordable telecom and networking equipment. It has thus become crucial to promote the domestic manufacturing of such equipment to reduce India’s reliance on imports and strengthen its position in global value chains. Robust telecom and network equipment manufacturing is also a prerequisite, considering the growing security concerns regarding data privacy and overarching geopolitical threats around personal data protection.
To this end, the Department of Telecommunications (DoT) launched the production-linked incentive (PLI) scheme for telecom and networking equipment. A look at the key features of the scheme, the progress so far, some policy gaps, and the way forward…
Key features of the scheme
The PLI scheme for telecom and networking equipment is aimed at boosting domestic manufacturing through incentives for incremental investments and turnover. It was released with a total outlay of Rs 121.95 billion for a tenor of five years, that is, from 2021-22 to 2025-26. The scheme came into effect on April 1, 2021, for products such as switches, routers, 4G/5G radio access network (RAN), wireless equipment, customer premises equipment (CPE), and internet of things (IoT) access devices.
DoT later extended the PLI scheme by one year. The revised scheme offers incentives in the range of 4-7 per cent for different categories and years. Additionally, a 1 per cent higher incentive has been proposed for micro, small, and medium enterprises (MSMEs) in the first three years. Based on suggestions from stakeholders, 11 new products were added to the target segment list, including open RAN equipment, RAN intelligent controller, satellite CPEs, and telecom modules of IoT/machine-to-machine access devices. Additionally, DoT announced an amendment to raise the incentive rate by an additional 1 per cent, aimed towards incentivising design-led manufacturing in the sector. For the design-led incentive (DLI) scheme, the government kept aside Rs 40 billion as incentives out of the total outlay of Rs 121.95 billion.
Progress and achievements
In November 2022, DoT approved the proposals of 42 companies, including 28 MSMEs, under the PLI scheme for telecom and networking products. Of these, 17 companies applied for the additional incentive of 1 per cent under the design-led manufacturing criteria. According to DoT, these 42 companies have committed investments of Rs 41.15 billion. This is expected to generate additional sales of Rs 2.45 trillion and create additional employment of more than 44,000 over the scheme period.
As of December 31, 2023, the government received Rs 29.63 billion in investments out of the total investment commitment. Of the total incremental sales committed by applicants, around Rs 425.54 billion had already been realised till the said date. The scheme has also generated 16,106 fresh jobs out of the targeted 44,494.
Owing to the PLI scheme, import substitution of 60 per cent has been achieved in the telecom sector and India has become almost self-reliant in antennae, gigabit passive optical network, and CPE. Notably, as much as 80 per cent of telecom equipment used in the 5G roll-out in India was locally manufactured.
As per the latest data, various telecom products are witnessing increased demand as 5G deployment expands across the country. 20 companies, including Nokia, Jabil, Sanmina, HFCL, VVDN, and Tejas Networks, have reportedly met their FY23 targets, making them eligible for incentives amounting to approximately Rs 4 billion. Recently, Tejas Networks received Rs 277.8 million as incentives for FY23, which accounts for 85 per cent of the total claim for the year.
Telecom and network equipment products worth Rs 88.04 billion had been exported till October 2023 under the scheme. However, India’s contribution to the global telecom equipment market stands at only 1.4-1.5 per cent. As per DoT statistics, exports of telecom equipment from India primarily consist of optical fibre cables, printed circuit boards, telephonic/telegraphic apparatus, and integrated services digital network equipment. The share of equipment for radio access networks, IP networks, core networks, and optical networks to support 4G and 5G technologies is currently minimal in overall exports from the country.
Shortcomings and recommendations
The PLI scheme is recognised as an instrumental measure for promoting the domestic equipment manufacturing market. However, a single scheme might not be able to comprehensively deal with all the challenges of the industry, as pointed out in a recent study done by the Telecom Regulatory Authority of India (TRAI). As per the study, Indian networking and telecom equipment manufacturing companies face a relative cost disability of up to 13.32 per cent compared to companies operating in China and up to 3.22 per cent in Vietnam. If PLI benefits are not considered, the relative cost disability goes further up by at least 4 per cent.
There are several reasons for such a disparity between the countries. For China, TRAI observed that programmes such as High and New-Technology Enterprise and Made in China 2025 extend multiple benefits to entities participating in the technological field such as electronics production. These schemes facilitate investment into research and development (R&D) as well as encourage low-end manufacturers to become producers of high-end goods. Meanwhile, Vietnam has incentives, thereby reducing corporate taxes for manufacturers in addition to lower import duties on components. In India, subsidy schemes focus on providing incentives on the number of finished goods produced, as well as dissuading the import of finished products by increasing import duties on fully assembled goods such as smartphones or networking equipment.
For intra-sector comparison, the subsidy scheme for smartphones, launched in 2020 with an outlay of Rs 380 billion, has been the most successful so far. As per TRAI’s calculations, exports have tripled to Rs 764.69 billion since the scheme started. However, the same cannot be said for what TRAI categorises as “Type 2” telecom products, which are products utilised by operators to set up their telecom networks. While DoT extended subsidies to 42 companies in the Type 2 category of products, the results are far more limited – exports increased by only 300 million during the first year of the subsidy scheme.
According to TRAI, it is essential to move forward from the concept of simply increasing domestic production and instead focus on local value addition in global value chains. It recommends that the government incorporate local value-addition incentives into its subsidy schemes to avail of benefits from the PLI scheme. TRAI suggests that there should be a concurrent PLI scheme focusing on components and sub-assembly manufacturing to facilitate collaborated manufacturing activities on the lines of the Component Champion Incentive Scheme to boost the domestic manufacturing of advanced automotive technology products. Under the DLI scheme, in addition to the announced 1 per cent additional benefit, another slab of an additional 2 per cent benefit must be introduced for product lines that yield a minimum local value-addition of 75 per cent.
The way forward
As of February 2023, DoT began disbursing incentives under the PLI scheme, with 20 companies expected to receive incentives after meeting their targets. However, given the Rs 15 billion unutilised funds and less than half of the selected 42 companies meeting their FY2023 targets, the government is contemplating the release of a revamped version of the PLI scheme. The revised scheme aims to incentivise additional telecom and networking products and allow fresh applications.
In conclusion, the PLI schemes have played a pivotal role in shaping the telecom industry and positioning India as a manufacturing hub for telecom and networking equipment. There is now a greater focus on R&D and on enhancing the role of start-ups and MSMEs in the ecosystem. The PLI scheme is also expected to boost the creation of 5G and 6G intellectual property rights in the country.
