Similar scheme for telecom equipment face less hurdles, say experts
The production linked incentive (PLI) scheme for mobile phone manufacturing is yet to take off though a similar scheme for telecom equipment has gained traction, says industry sources.
The PLI scheme aims to create a conducive environment for manufacturing by offering incentives comparable to other countries to attract large investments into the manufacturing sector. In the case of PLI for mobile phones and specific electronic equipment, the incentive structure was 4-6 per cent of the incremental sales over the base year. The PLI for telecom equipment offers 4-7 per cent for different categories and years. Both schemes are treating FY 2019-20 as the base year.
In the days following the announcement of PLI in Mobile handsets in June 2020, an industry expert wrote, “The current (mobile handset and other electronic equipment) PLI scheme is well thought through……and is a right step towards “Atmanirbhar Bharat” – driving India into a hub for manufacturing. Now India is offering subsidies to only those companies who commit to making investments, expanding exports, local value addition and employment creation.”
By October 2020, India cleared 16 proposals from international and domestic companies, involving an investment of ₹11,000 crore under the PLI scheme to manufacture mobile phones worth ₹10.5 lakh crore over the next five years.
However, what is the benchmark where one could have still seen an immediate effect?
“You could have seen a steep rise in exports by this time”, says Analyst Faizal Kawooza. “That is something we are not seeing for now.”
Kawooza explained that mobile manufacturers had a timeline constraint. “They are already demanding an extension. This is a fair demand since they did not get the time, because of Covid-19. The disruption in supply chains prevented them from coming up to the levels where they could become beneficiaries,” he noted.
Kawooza also said that India always had a low domestic value add in the mobile manufacturing sector. This will only increase once the component ecosystem is attracted to establish itself in India.
Component manufacturers will be incentivised to set up shop in India, only when they see sufficient demand from OEMs. As an industry expert explains, previously, the nature of mobile manufacturing in India was assembling components to create end-product mobile handsets. Components were manufactured elsewhere and imported into India, since catering to local demand did not generate enough volumes to justify setting up a component manufacturing unit.
The implicit aim of the PLI scheme is to increase the volume in numbers and value so that it can act as a magnet to set up the component industry to start manufacturing India.
“Setting up of such supply chains and stabilising enough to attract component ecosystem will take time,” Kawooza adds.
Thus, the true impact on domestic value add is still 2-3 years away. Kawooza approximates that presently India has 16-17 per cent domestic value add in the mobile sector.
“Mobile manufactures is one of the prime jewels in the electronic industry in India. Therefore, there is no reason for the number to be so low. Ideally, the domestic value add levels should be as high as 50 per cent in mobile manufacturing.”
Speaking of his experience of applying under PLI, SN Rai, owner of Lava International Ltd said, “This investment will help us to invest more on our capital side, the risk of CAPEX will also come down…..of course, targets are also tough and timeline is also quite steep….so at this moment we are all busy fulfilling the requirements. Things might be tough at the moment but in the next two to three years, this is going to help us.”
The company plans to invest ₹800 crore in 2021 in research and development, manufacturing and establishing their international presence. According to Rai, Lava is targeting annual growth between 25-30 per cent.
In February, the union cabinet approved the production linked incentive scheme for the telecom equipment sector. Sanjay Nayak, CEO, Tejas Networks said, “The potential for domestic value addition for telecom equipment is relatively much higher in comparison to mobile handsets. This is because any new-generation telecom equipment has high software and IPR content and India is clearly strong in R&D and design skills. We welcome the PLI policy, since it is intended to promote domestic manufacturing as well as indigenous development of telecom products using R&D. The traditional route of transfer of technology has not worked in high-tech sectors like telecom, since no foreign company will hand-over all their design and IPR, which they develop after spending huge amounts in R&D. To become truly Atmanirbhar in telecom equipment, we have to give opportunities to Indian entrepreneurs to design and Make in India, for the world.”
While subsidy provided by the PLI scheme is the same percentage for both the telecom and mobile sectors, domestic players are more likely to get benefitted in the case of telecom equipment. As Kawooza explained, the primary route through which domestic players can get benefits through PLI in the mobile sector is in collaboration with international brands that dominate the sector. Telecom equipment sector does not face the same hurdles as there are many domestic players in the fray.
“Tejas Networks has demonstrated that it is indeed possible to develop technologies from scratch in India and sell it in the most competitive market which is India and further export to more than 75 countries. We just have to nurture more such companies, and the PLI scheme for telecom equipment, with a focus on design as well as manufacturing of new generation of telecom products, is a welcome step,” Nayak added.
(The writer is an intern with BusinessLine)