The Government is determined to make India “Atmanirbhar” with world-class manufacturing infrastructure and transform it into a competitive global manufacturing destination. The Government had introduced aggressive duty reforms, various incentive schemes to encourage domestic manufacturing and reduce the import bills. However, the Government realised that the above measures were insufficient to compensate local disabilities faced by the Indian manufacturers compared to the international compete destinations.
To counter the above, the Government’s think tank rejigged the entire incentive regime to be more focused on critical and import heavy sectors. The new incentive regime called the Production Linked Incentive (PLI) schemes was conceived to create champions in large sectors and a sizeable budget of Rs 1.97 lakh crore was allocated towards the same in the Union Budget 2021-22. The announcement covered 13 sunrise sectors comprising of Electronics, Pharma, Telecom, IT hardware, Batteries, Auto etc. Of the 13 sectors, the Government strongly focused on the Telecom sector due to the recent security concerns and excessive import dependence. Keeping this in mind, the PLI scheme for telecom & networking products was notified on 24 February 2021 with a huge budgetary outlay of Rs 12,195 crore.
The incentive under the scheme will be provided to eligible applicants for a period of five years effective from 1 April 2021 with a condition of minimum incremental investment and incremental sales. The scheme also provides a special focus on MSME/Startup sector with a 1% additional incentive for the first three years.
| Segment | Incentive | Minimum Investment Commitment | Maximum sales ceiling |
| MSME | 7% to 4% of incremental sales | Rs 10 crore | 20 times of committed investment each year |
| Other than MSME | 6% to 4% of incremental sales | Rs 100 crore20 times of committed investment each year |
The eligible products under the scheme are core transmission equipment, 4G/5G, next-gen RAN and wireless equipment, access and customer premises equipment, IoT access devices, and other wireless equipment and enterprise equipment like switches, routers, etc. Incentives shall be calculated on incremental sales of manufactured goods over the base year, i.e., 2019-20. Incentives will be granted once all the scheme conditions are met by the applicant and the maximum incentive per applicant may exceed three times the total committed investment. With such huge incentives, both global and domestic manufacturers are planning to enhance their manufacturing capacities and cater to domestic and international demand.
India is the second-largest telecommunication market and with telecom services providers moving towards 5G technology and new-age connected equipment, domestic manufacturing will play a pivotal role to set up the digital infrastructure in the country. The scheme proposes to offset large import of telecom equipment worth more than Rs 50,000 crore and reinforce it with made-in-India products.
Last year, the Government issued PLI scheme for the electronics sector which received enormous traction and global brands like Samsung and Apple shifted a part of their global production capacities to India. Further, some brands partnered with Indian manufacturers which grew the electronic manufacturing service (EMS) opportunities in addition to building their own brand. Similar interest is expected from the telecom PLI scheme and the Government foresee investment of more than Rs 3,000 crore with incremental production of Rs 2,00,000 crore over 5 years. The scheme will also support building a conducive manufacturing ecosystem in the country and increase its share in the export market.
The government would need to work hard for successful implementation of the policy especially with another wave of COVID-19 pandemic hitting the entire world and may make the scheme guidelines more flexible. The industry is awaiting the functional guidelines of the policy to finalise on the investment plans and start the process of applying under the scheme. It would be important to analyse following aspects once the guidelines are issued
Investment Commitment and number of approvals: Applicants with higher investment commitment over the minimum thresholds will have a better chance for selection. Thus, the companies should be careful while applying under the policy. The Government on the other hand should ensure a strict evaluation under the scheme to ensure committed manufacturers are not deprived of the benefits. The guidelines should be suitably framed to ensure that the investment commitment made by the applicants are fulfilled or there is no major variance.
R&D expense: Considering the constant evolution of technology, Telecom industry has large R&D investments and are highly customized. Thus, there may be a transfer of technology and it is important to evaluate coverage of R&D under the eligible investment
Localisation requirement: Considering the trend in recent PLI scheme such as IT hardware, where a localisation schedule has been laid down. It is likely that a similar condition would be incorporated in the telecom PLI scheme. This may need to be relooked as companies currently rely heavily on contract manufacturing models for key sub-assemblies.
The current scheme is a wonderful opportunity for developing telecom manufacturing in India, a vision that has been unfulfilled for the country and is a key building block of making India ‘Digital’. Government and the industry should partner together to ensure this opportunity is not missed.
The writer is Partner – Indirect Tax, EY India. Sourabh Jain, Senior Manager – Tax, EY also contributed to the article.
