The recent proposal by the Department of Telecommunications (DoT) to review norms on local value addition for telecom equipment can prove to be a serious setback to India’s ambition to become a global manufacturing hub. The DoT has raised concerns about the challenges faced in achieving 50-60 per cent local sourcing for telecom products due to India’s limited component ecosystem. While these constraints are valid, the proposed dilution of local sourcing norms undercuts the Centre’s multi-decade effort to promote indigenous manufacturing.

Under the current rules, telecom equipment manufacturers must ensure that 50-60 per cent of their total bill of materials is sourced locally to be classified as Class-I local suppliers. This classification is critical, as it gives such suppliers preference in tenders floated by public sector undertakings and ministries. Diluting these requirements will tilt the playing field in favour of foreign giants with established global supply chains, putting Indian firms, many of which have invested heavily in local capabilities, at a disadvantage. Some global equipment makers argue for a short-term relaxation due to India’s dependence on imported components like semiconductors. But this view overlooks the strategic imperative of creating a robust domestic supply chain, given the current volatility in global supply chains and the influence of geopolitical factors on trade flows. The proposal comes at a time when domestic companies, using open-source platforms to build 4G and 5G equipment, are struggling to gain a foothold in the market. Despite technological competence and innovation, their gear has only been deployed by a public sector operator. Lack of industry-wide support has made it hard for local manufacturers to scale up operations or compete globally.

The contradiction between the DoT’s latest notice to stakeholders and the government’s past efforts is stark. From the establishment of Indian Telephone Industries Ltd in 1948 and the Centre for Development of Telematics in 1984, to the National Telecom Policies of 1999 and 2012, the focus has been on promoting local production. The Make in India initiative and the Production Linked Incentive scheme underscore the Centre’s resolve to strengthen domestic manufacturing. Instead of diluting value-addition norms, the DoT should focus on building an ecosystem that encourages telecom operators to buy locally made equipment. This would enable manufacturers to invest in component-level production.

Unfortunately, several key proposals from the Telecom Regulatory Authority of India to support local production remain unimplemented. These include the suggestion to lower the licence fee for operators purchasing equipment from local manufacturers. TRAI had also proposed a 10-year income tax holiday for domestic manufacturers with turnover under ₹1,000 crore, similar to earlier incentives for the software industry. Such fiscal support would have given small and mid-sized manufacturers a leg-up.

Published on June 11, 2025