Dialling growth with telecom PLI scheme

February 26, 2021 7:00 AM

It is expected to pave the way for incremental production of Rs 2.4 lakh crore, including exports of Rs 2 lakh crore over five years, apart from new investments exceeding Rs 3,000 crore

Simultaneously, the exports linked incentives on offer hit a roadblock with the World Trade Organisation (WTO).Simultaneously, the exports linked incentives on offer hit a roadblock with the World Trade Organisation (WTO).

By Bhavesh Thakkar

The Indian manufacturing sector has seen tremendous growth in the past few years owing to the “Make in India” initiative. Recognising the potential benefits of manufacturing, the government has taken several initiatives to encourage domestic manufacturing and help transform India into a global manufacturing and exports hub. Initially, the government relied on measures like tariff changes for import substitution and de-linking of imports from some countries to achieve this goal. However, a need for initiatives that would directly impact the scale of domestic manufacturing was felt.

Simultaneously, the exports linked incentives on offer hit a roadblock with the World Trade Organisation (WTO).

With this backdrop and to continue the momentum to incentivise local manufacturing, the focus has now shifted to sector-specific incentives schemes known as the Production Linked Incentive (PLI) scheme(s). These schemes are aimed at scaling up domestic manufacturing in critical sectors while also ensuring compliance with WTO norms. Needless to say, the creation of such a manufacturing ecosystem will also lead to the generation of ample employment opportunities, thus utilising the abundant resource pool that India offers. Thus, in November 2020, the Union Cabinet announced PLI schemes for 10 key sectors to boost India’s manufacturing capabilities and enhance the nation’s share of exports in the global supply chain. In the announcement, the government has identified the sectors, eligible product lines and overall financial outlay for the next five years. This announcement came on the back of PLI schemes announced for three sectors (mobile phones, critical pharmaceutical drugs and medical devices) earlier in 2020, which were well received by the industry.

Recently, the PLI scheme for the telecom sector was approved by the Union Cabinet, with a budgetary outlay of ?12,195 crore. The scheme, effective from April 1, will provide financial aid of 4-7% to telecom gear manufacturers for a period of five years. Incentives will be provided on incremental sales of manufactured goods over the base year, i.e., 2019-20, with a commitment towards minimum investment in the country.

Presently, most of the nation’s demand for telecom equipment is met through imports. Trai envisions net zero import of telecom gears by 2022. Aligned with this vision, the PLI scheme proposes to incentivise domestic manufacture of the following products:

  • Core transmission equipment
  • 4G/5G, next-gen RAN and wireless equipment
  • Access and customer premises equipment
  • IoT access devices
  • Other wireless equipment & enterprise equipment like switches, routers etc.

With benefits being provided to these core products, the scheme aims to offset the huge import of telecom equipment, currently exceeding Rs 50,000 crore. Companies qualifying under the scheme would be eligible for benefits that could go up to 20-times the minimum investment threshold. The scheme has been framed after consultation with industry stakeholders and seems to meet expectations with the minimum investment threshold kept at Rs 100 crore for large players (vis-à-vis investment of Rs 10 crore for MSME). The government also acknowledges that the MSME sector would need additional support, and hence an additional incentive of 1% has been announced for such investors in the initial three years.

The scheme is expected to pave the way for incremental production of around `2.4 lakh crore, including exports of around Rs 2 lakh crore over five years, apart from new investments exceeding Rs 3,000 crore.

The telecom sector is the backbone for “Digital India”. Thus, this scheme is a welcome move and will also aid the ongoing focus towards digital transformation. Owing to this announcement, telecom equipment manufacturers are mulling enhancement of their manufacturing capacities. Global players also seem to be evaluating the dynamics behind manufacturing in India.

Considering the promising benefits under this scheme, coupled with lower corporate tax rates for new manufacturing units, it is expected that India will soon witness increased manufacture of core telecom equipment. The scheme will be implemented and monitored by the central government. At the same time, investors will also be eligible for availing incentives granted by the State government(s) in addition to those offered under the PLI scheme.

The detailed scheme guidelines are in the pipeline and will elaborate on operational aspects such as the application procedures, disbursements etc. While these are awaited, investors should extensively evaluate and pursue all incentives avenues to benefit from the holistic support intended by the government. Such end-to-end support from the policymakers may help transform India into a preferred investment destination.

The author is Tax partner – Indirect Tax Services, EY India.
Views are personal

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