Earlier this month, the Indian Government’s Department of Telecommunications (DoT) approved 31 proposals entailing an investment of $447 million (INR 33450 million) over the next 4.5 years, as part of the Production Linked Incentive (PLI) scheme for telecom and networking products manufactured in India.
Proposals from seven global companies, eight domestic firms and 16 Micro Small and Medium Enterprises were approved. Nokia India, Ericsson, Foxconn, Tejas Networks, VVDN, STL Technologies, Dixon and HFCL, are some of the companies selected for this scheme.
The PLI scheme covers the manufacturing of telecom gear, such as core transmission equipment, 4G/5G radio access network (RAN) and wireless gear, internet of things (IoT) access devices, customer premises equipment (CPEs), and enterprise equipment including switches and routers, among others.
The Indian telecom industry is heavily dependent on foreign equipment vendors, and the PLI scheme is designed to bring down this dependency. While telecom equipment export grew from $0.6 million in 1998 to $1.2 billion in 2018, the imports touched $21 billion in 2018. Further, India is among the top five revenue-generating countries for both Ericsson and Nokia. For Ericsson, the share of sales from the Indian market doubled from 2% to 4% in the first half of the current year 2021.
“The Production Linked Incentive Scheme will promote Telecom and Networking Products manufacturing in India. Accordingly, a financial incentive is proposed to boost domestic manufacturing and attract investments in the target segments of telecom and networking products in order to encourage “Make in India,” said the notification issued by the DoT. “The Scheme is also expected to boost export of telecom and networking products made in India.”
What is the PLI scheme all about?
Spread over five years, the PLI will offer incentives worth between 4% to 7% on incremental sales of goods manufactured in India. A company must invest over $400 million in India over four years and export goods worth $133 million annually. The scheme is likely to boost telecom equipment production worth by $32.6 billion (INR 2440 billion) and create 40,000 jobs.
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The PLI scheme was introduced at a time when the space occupied by the Chinese vendors was left vacant in India. Huawei and ZTE, along with other Chinese vendors, are finding it tough to participate in the country’s telecom market because of the adversarial regulatory environment.
The Chinese vendors are known to offer cheaper-priced products, which has played a crucial role in helping Indian telcos offer services at rock-bottom tariffs. With the PLI advantage the Indian vendors can hope to capture this segment. At the same time, most of the Indian vendors tend to focus on the global market because of better margins.
The Indian government has been trying to position the country as a manufacturing destination, and the PLI scheme is a step in this direction. The “Make in India” initiative was launched in 2014 with this aim. This is also important for the government to generate new jobs, as lack of jobs is one of the biggest problems faced by the country right now.
Last year, India had hoped to benefit from the supply chain disruption after the outbreak of the pandemic and manufacturers moved out of China. The PLI scheme can improve India’s chances of grabbing this business when compared with other countries such as Vietnam.
The PLI initiative is also in keeping with the Atmanirbhar Bharat (self-reliant India) policy of the Indian administration. In line with this policy, the government recently made it mandatory for the state-owned telco, Bharat Sanchar Nigam Limited (BSNL), to use a homegrown 4G solution.
While some Indian vendors, like Tejas Networks, Saankhya Labs and Sterlite Technologies, have made a place for themselves in the global market, largely the Indian vendors have struggled to innovate and scale. The PLI scheme hopes to change this by creating a vibrant ecosystem of domestic vendors.