Union Budget 2022: Deciphering the announcements from the Telecom sector as well as highlighting the impact and future outcome of the announcements

Peeyush Vaish, Partner and Telecom sector Leader, Deloitte India

Recent budget announcements for the second-largest telecoms market demonstrate the government’s determination to heave the telecom industry. The government’s approach is clearly seen towards shaping the telecom industry’s focus from being a service provider to becoming a collaborator for other service providers.

The recent announcements made in the Union budget suggest that apart from relaxations given to the telecom sector with regards to AGR dues and interest thereof in September last year, the GOI shows strong signs of supporting the Bharat Net project which entails connecting the rural and remote part of the country up to last-mile through public-private partnerships by means of fiberisation .

Right investment to expand reach

This movement would cost approximately Rs. 294.3 billion as per the telecom minister.

The government would invest approximately 65 per cent of the total cost to be incurred under the Bharat Net project as viability gap funding (VGF). As per the Department of Telecommunication (DoT), Government has an ambitious plan to fiberise 600,000 villages by 2025, out of which 260,000 villages have already fastened with the belt of fiberization under this project through fiber optical cables. The Government’s commitment towards 100 per cent fiberization by FY 2025 and the contracts for laying optical fibers shall be awarded in 2022-23 itself as per the recent budget announcements.

The lucrative announcement on the allocation of 5 per cent (USOF) Universal Service Obligation Fund is a booster shot to bridge the gap between where we are and where we are commitment is  going. This will also strengthen the Make in India initiative and create ample employment opportunities by making India a global manufacturing hub.

As per the estimates quoted by Telecom Secretary, the annual collections under USO funds make up to roughly Rs 90 billion every year; 5 per cent allocation for the R&D component will come with numbers of around to roughly Rs 4.5-4.8 billion. The USO funds are intended to provide financial help for linking the country’s commercially unprofitable rural and isolated areas to the rest of the world, which will be demonstrated as another step toward the government’s lofty goal of achieving digitalization ambitions. The 100 percent connectivity will also help to improve the existing thriving digital payment systems of the country in rural and distant locations as well.

Finance minister Sitharaman prior to the Budget-day had announced that India’s own digital currency will soon be a reality. The currency is expected to be issued by the RBI in 2022-23 using blockchain technology, the minister said.  While complex functions run in the background, low latent 5G will enable the user’s experience to work seamlessly. 5G can go a long way in eclipsing the complication of the digital currencies from the user. Selecting the fastest test access mode for every user and machine will be at the most challenging position in the coming days. As a government committed to rolling out 5G auctions within the next 12 months surely will create a new generation of access technology solutions to build a sustainable environment for the digital world.

For a sector that is the third-largest receiver of FDI inflows, Google Inc’s recent investment announcement of about $ 1 billion in a leading telecom puts the assertion to the test. As the government focuses on the need for wider coverage as well as high-quality services in rural regions, sufficient CAPEX investments will be required.. To achieve the desired goal of GOI i.e., revolutionizing the era of the digital world in the country, we can expect Reforms 2.0 around the corner, probably as early as late Q1-2023.

As per the Minister of State for Telecommunications in India, the PLI scheme for telecom equipment and networking was already announced with an outlay of Rs. 121.95 billion for a period of five years until FY2025. The Department of Telecommunication (DoT) approved 31 proposals so far which will bring approximately Rs. 33.45 billion over a period of the next four and half years, the minister of state for telecommunication said. In the recent budget, the government announced a further 5G design-Led PLI scheme to encourage 5G design-led manufacturing in the country. The government is anticipated to spend Rs. 40 billion from the existing PLI plan for telecom equipment, which has a corpus of roughly Rs 130 billion, for the 5G design-led PLI incentive scheme. This will support the better enhancement of 5G use cases in the areas of Private networks, O-RAN, small cells, etc.

“The government’s enthusiasm to speed up the rollout of 5G is understandable, since it is a key facilitator of economic growth and job creation in the country, thanks to the current generation of communications technology. The industry itself is making significant efforts to become profitable. What we are witnessing now is going to have multifold effects. Some reforms can be harvested in the long run while some can be tasted immediately in the fiscal year 2022-23.”