Higher the amount a company commits, better the chances of getting selected
The department of telecommunications (DoT) has framed the draft guidelines for the production-linked incentive (PLI) scheme for telecom equipment in such a manner that companies committing higher investments would stand better chances to qualify for it. This in a way could lead to a bidding war amongst different gear manufacturers and only the highest bidders may get selected to avail of the incentives.
So far, leading global telecom equipment manufacturers like Cisco, Nokia, Ericsson, Jabil, and contract manufacturers, Flex, Dixon Technologies and Foxconn have indicated their desire to apply for the scheme. According to the draft guidelines, these companies would have to commit investments over and above the base threshold and if the outlay gets exhausted if a couple of them commit higher amounts then chances are there that some may get left out.
To illustrate: The total outlay for the PLI is Rs 12,195 crore over five years and companies would be eligible for incentives subject to achieving minimum threshold of cumulative incremental investment and incremental sales of manufactured goods. The minimum investment threshold for MSMEs has been kept at Rs 10 crore and for others at Rs 100 crore. The scheme is expected to bring investment of over Rs 3,000 crore. Now, the DoT plans to select a total of 20 companies under the scheme – 10 from the micro, small and medium enterprises (MSMEs) and 10 from the general pool which may see global telecom vendors like Nokia, Ericsson, etc.
Under the draft guidelines, which would be finalised and announced later this week, once the feedback of commerce ministry, department for promotion of industry and internal trade (DPIIT) and Niti Aayog are received, it is not necessary that 10 companies would be able to make the cut within the 10 open for non-MSME firms. If, for instance, Rs 2,500 crore is the total investment earmarked for non-MSME firms and a couple of firms commit higher investments over the base Rs 100 crore which exhausts the amount, then there may not be room for 10 firms to make to the list. Industry executives told FE that bigger players may try to edge out smaller ones by committing higher investments. Some legal experts said that this could lead to litigation if any major player is elbowed out by bigger, influential firms.
This kind selection based on committing higher investments over the base amount, was not the case when companies were selected for smartphone PLI. There the government wanted to select five global companies and only five applied also. The reason for the same was that nine months before the scheme was announced the government had discussed the modalities with the concerned firms and knew that only they would apply.
However, no such higher investment criteria has been laid down for MSME firms as the government does not expect them to invest much higher than the base amount of Rs 10 crore.
As is known, incentives under the scheme will be given over five years and the incentive structure ranges between 4% and 7% for different categories and years. For MSMEs, 1% higher incentive is proposed in year 1, year 2 and year 3. Financial year 2019-20 will be treated as the base year for computation of cumulative incremental sales of manufactured goods net of taxes.
Telecom equipment which would get covered under the scheme, includes core transmission equipment, 4G/5G next generation radio access network and wireless equipment, access and customer premises equipment (CPE), Internet of things (IoT) access devices, other wireless equipment and enterprise equipment like switches, routers etc.
The scheme is expected to offset huge imports of telecom equipment worth more than Rs 50,000 crore and reinforce it with Made-in-India products both for domestic markets and exports.