Govt is rightly investing in telecom infrastructure, recognised as a key enabler for growth of the economy
In November last year, the government made big bang announcements on Production Linked Incentives (PLI) schemes in 10 sectors. This was on the back of the already implemented PLI schemes for mobile and pharma sectors.
The scale of the outlay and the wide coverage of the sectors is unprecedented. It is a reflection of the increasing confidence of the government on this PLI template to drive investments for the future.
The PLI schemes are also seeking a sharper allocation of incentives. PLI outlays are committed to only identified strategic sectors and are also granted primarily to finite number of applicants who are best suited at driving investments, employment and creating global manufacturing hubs in India. This allows for a much larger per capita incentive allocation to corporations.
The schemes are being constructed through extensive consultations with prospective investors. There has been a conscious desire to ensure transparency and certainty for entitled investors in the design of these schemes.
The agenda for telecom
India is the second largest telecom market in the world in terms of subscribers. The PLI scheme for mobile and related consumer devices, implemented a few months earlier, had a financial outlay of ₹40,951 crore ($5.5 billion) and has been immensely successful. It garnered investment commitments of ₹11,000 crore ( $1.5 billion), production capacity of ₹10.5 lakh crore ($14.5 billion) with incremental employment estimates of 800,000. The PLI has already triggered entry of several global players manufacturing mobile devices and components.
Then, the focus rightly turned to telecom and networking products. Telecom infrastructure is recognised as a key enabler for growth of the economy. The expansion of usage and critical dependency of wide swathes of commercial and social economy is driving investment. The impending roll out of 5G alongside the expansion of 4G coverage also continues.
Globally the telecom equipment market opportunity for Indian manufacturing sector is in excess of $100 billion. The Indian telecom equipment industry is estimated to exceed $10 billion and its imports are estimated to be around $8 billion.
For the telecom networking products, the obvious upside being targeted is the import substitution of these products and creating scalable manufacturing infrastructure in India. To this end the government, a couple of years back, had increased the basic customs duties on these products to 20 per cent.
Further there are non-tariff measures such as Public Procurement (Preference to Make in India) Order 2017 (commonly referred to as a PMI order) issued by the Department of Promotion of Industry and Internal Trade (DPIIT) that mandates governments or public sector enterprises — big customers for these products — to primarily prefer Indian manufactured products already in place. The Telecom Regulatory Authority of India (TRAI) has set an objective of net zero import of telecom equipment by 2022.
Atmanirbhar Bharat’s (Self-reliant India) objective is also perhaps equally relevant. The strategic intent of the scheme is to also build credible manufacturing and technological capabilities from a national security perspective.
The salient features
The Scheme, which became effective from April, proposes to grant incentives of 4-7 per cent to eligible telecom equipment manufacturers over five years. These incentives will be granted only on incremental sales of manufactured goods over base year 2019-20. The eligible manufacturers are expected to be selected on various criteria including quantum of investments, employment potential, exports as also development of intellectual property in India.
The mandated minimum investment threshold is ₹100 crore ($14.5 million) for large players. Micro, Small and Medium Enterprises (MSME) need to have a minimum investment threshold of ₹10 crore ($1.4 million) and are to be granted an additional 1 per cent incentive for the first three years.
The products covered under the PLI scheme are:
(a) Core Transmission Equipment
(b) 4G/5G, Next-Gen RAN and Wireless Equipment
(c) Access and Customer Premises Equipment
(d) IoT Access Devices
(e) Other wireless equipment & Enterprise equipment like Switches, Routers etc.
The eligible manufacturers could be entitled to gross incentives of 20 times the minimum investment requirements.
The scheme is expected to garner incremental production of around ₹2.4 lakh crore ($34 billion), including exports of around ₹2 lakh crore ($28 billion) over five years, and incremental investments exceeding ₹3,000 crore ($420 million).
The way forward
Over the past 18 months India appears to be clear-headed and sure-footed in competing for global and domestic investments.
The country implemented a competitive corporate income tax rate of around 17 per cent for fresh investments in manufacturing.
The government during the Union Budget exercise announced re-evaluation of 400 customs duty exemptions and concessions in the next six months thus encouraging manufacturing in the country. Exemptions on final products should be re-evaluated while duties on inputs could be reduced. The PMI orders should be expected to be widened in coverage and implemented more sincerely.
State governments should also be expected to increasingly align their incentive programmes with the Central government initiatives.
These incentives are equally lucrative. There are other schemes ensuring material duty and working capital savings such as the ‘Manufacturing and Other Operations in Warehouse Regulations (commonly referred as ‘MOOWR’) — these schemes are being fine-tuned for easing compliances.
Investors can reduce their capex outlay with all these incentives by more than 20-25 per cent. Investors need to approach investments decisions taking into account incentives from the several avenues available.
The writer is National Leader – Indirect Tax Services, EY India. The views expressed are personal