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| Updated on February 22, 2021

Telecom PLI rightly combines incentives with output and export obligations

The production-linked incentive (PLI) scheme for manufacturing telecommunications and networking products, with an outlay of ₹12,195 crore over five years, could pave the way to make India the next major global hub for 4G and 5G equipment, switches, routers, and core transmission gear that’s critical for building next-generation communication networks around the world. The PLI scheme is based on an incentive structure of 4-7 per cent, provided a mandatory threshold of output and export is achieved across various categories of producers and products. This makes it different from earlier and existing schemes that failed because of their focus on incentives sans obligations. The PLI scheme aims at achieving production worth ₹2.4-lakh crore with expected investments of over ₹3,000 crore over the next five years. This could generate jobs for nearly 40,000 people and reduce India’s import bill by ₹50,000 crore annually. The policy also envisions export of telecom gear worth ₹1.95-lakh crore. From a failed policy of promoting semi-conductors in the 1980s, the wheel has come a full circle. However, the PLI scheme should be implemented so as to avoid any WTO backlash, learning from the solar sector episode.

The focus on developing India in this area of opportunity augurs well for the global network hardware ecosystem, which has been looking beyond China. However, it is important to know where the previous incentive schemes failed. An incentive package for setting up semiconductor fabrication units has found no takers. Though two consortia had submitted proposals to establish fabrication units, both remain on paper. The semiconductor is the ‘heart’ of any electronic product. Getting a global player to start manufacturing it in India will be the key to the Make in India vision. There has been some success in the manufacturing of mobile phones in the country, but critical components are imported in the absence of commitments with respect to export or value addition. Most of the revenues generated from locally assembled phones goes back to China.

With the demand for electronics hardware expected to rise rapidly to about $400 billion by 2023-24, India cannot afford a huge foreign exchange outgo on the import of electronics. Telecom manufacturing has been undone by zero duty imports, high domestic production costs, and manufacturing ecosystem challenges. The Centre should work towards creating an ecosystem in which the industry can be competitive without import protection. The TRAI’s proposal to lower the licence fee of telecom operators buying locally made equipment could be considered. The Centre should enable component and semiconductor makers to set up shop. Without a strong components ecosystem, Indian manufacturers will find it difficult to compete with emerging global hubs such as Vietnam. India may have already missed the bus on older technologies but could become the leader in 5G and the Internet of Things.

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Published on February 22, 2021
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