The Union Cabinet has approved a proposal to give preference to domestically manufactured goods while procuring electronics goods that have security implications for the country. The concerned organizations will be required to specify the percentage of such procurement, which should not be less than 30 percent of the total value.

Reacting to the decision, The Information Technology Industry Council (ITI), Telecommunications Industry Association (TIA), US-India Business Council (USIBC), and 32 other associations from the United States, Europe, Japan, Canada, Australia, Hong Kong, and Korea have sent a letter to the Prime Minister to rescind the new rules, which are claimed to unfairly discriminate against foreign firms and potentially violate World Trade Organization agreements. Additionally, the TIA has sought support from Telecom Equipment Manufacturing Association (TEMA) in opposing the proposed preferential market access (PMA) policy. The PMA applies not only to government organizations but also to other purchases that have security implications for the country. PMA policy is likely to undermine the provision of affordable telecom services in India.

Additionally, the reserve price for the auction of spectrum as recommended by TRAI is being deemed as exorbitant by telecom operators. TRAI has proposed reserve pricing per MHz at `3622 crore for 1800 MHz, `14,000 crore for 700 MHz, and `7244 crore for 800/900 MHz. These recommendations are perceived to discourage investment in networks, restrict the growth of mobile services, and drive up consumer prices.

The passive infrastructure sector, including communication towers, will be subject to excise duty, which is excluded from Cenvat credit either as capital goods or as inputs. In a recent verdict in Bharti Airtel versus CCE, the Mumbai Tribunal has negated the claim for CENVAT credit on any part of the passive infrastructure used for providing mobile telephony services.

While the government's concern for national security is understandable, a balance needs to be struck between indigenously manufactured and imported electronics products to keep services affordable in the long term.