FY25 Budget enhances spending on rural connectivity, semiconductors

The government’s spending on rural connectivity via the Universal Service Obligation Fund (USOF) and disbursements from the semiconductor incentive scheme will see a significant uptake in FY25, according to Budget estimates in the interim Budget of 2024-25.

This comes after the government is expected to end FY24 with a record high spending on rural connectivity at Rs 15,700 crore, which is up 51% from the earlier estimate of Rs 10,400 crore.

In FY25, the spending on rural connectivity via USOF is estimated at Rs 19,000 crore, an increase of 21% from FY24. This is because of the expenses on implementation of the Rs 1.4 trillion phase-3 BharatNet project, and viability gap funding to telecom operators for government rural connectivity projects.

“Today, the telecom sector is very robust. Growth and the expansion of telecom networks is visible to all of us and usage of data is increased. Our overall revenues are increasing even though we are the most affordable telecom sector in the entire world today,” communications and IT minister Ashwini Vaishnaw said.

According to Vaishnaw, with regard to rural connectivity, the progress is very strong on the 4G saturation project to connect villages. The pace at which towers are getting constructed is good, he added.

Sunil David, co-chair at Digital Communications Working Group, said, “funding of rural telecom infrastructure is an absolute imperative to bridge the digital divide. The next level of growth of wireless and wireline subscribers will be from rural hinterlands.”

Similarly, on the semiconductor incentives, the government is expected to spend Rs 6,900 crore, a nearly five times jump from Rs 1,500 crore estimated spending in FY24.

The government’s focus to increase semiconductor disbursements from the Rs 76,000 crore approved incentive scheme is likely to happen as it anticipates a few good chip proposals including that of fabrication units to get approved in the coming financial year, officials in the know said. Further, various other projects in Assembly, Testing, Marking, and Packaging (ATMP)/Outsourced Semiconductor Assembly and Test (OSAT), along with semiconductor design scheme, will require the government to spend more in FY25.

Currently, the ministry of electronics and information technology (MeitY) is evaluating six applications for setting up semiconductor fabrications, three applications for setting up display fabrications, and ten applications for setting up compound and ATMP facilities in the country.

Talking about the plans on semiconductor, Vaishnaw said, “trust on semiconductor manufacturing, trust on India is significantly higher. We’ll see more announcements soon.”

“First plant from the date of announcement to date of construction in less than 90 days – this is something which people noticed, the clarity of policy and the ability to execute a project has been noticed,” he said.

According to the FY25 budgetary estimates, of the Rs 6,900 crore, the government will spend Rs 4,200 crore on ATMP/OSAT projects, Rs 1,500 crore towards fabrication units, Rs 900 crore on modernisation of Semi-conductor Laboratory (SCL), and Rs 300 crore on design linked incentive and display scheme.

Notably, the government has cut its FY24 spending on the semiconductor incentives by 50% to Rs 1,500 crore from the earlier estimates of Rs 3,000 crore, the Budget document showed. The same was done in absence of any fabrication project for approval and less spending on the design-linked scheme.

Vaishnaw, however, was confident that a fabrication unit project would be announced soon.

Additionally, disbursements related to the production-linked incentive scheme for mobile phones and IT hardware is pegged at Rs 6,200 crore, 36% higher than Rs 4,560 crore.

“The increase in government spending will enable more investors to come and invest in semiconductors. Both smartphone and IT hardware have to move up the value chain and the new PLI scheme encourages higher value addition,” said Ajai Chowdhury, co-founder HCL and chairman of Epic Foundation.

“The development of India’s hi-tech electronics manufacturing industry is key, for which the government has bolstered allocation by 130%, providing a strong impetus to business ventures in semiconductor and display manufacturing,” said Akarsh Hebbar, global managing director of Vedanta’s semiconductor and display Businesses.

Telecom Receipts
In FY25, the non-tax receipts for the department of telecommunications (DoT) is pegged at Rs 1.2 trillion, an increase of 29% from the Rs 93,000 crore estimated in FY24.

This time too, loss-making BSNL will help DoT to tide over its receipts target. The spectrum allotment to BSNL for 4G/5G services is shown as receipts by the government even if the state-owned telecom operator will not pay the government in cash but offer equity in lieu of the spectrum. This is very different from actual revenues flowing to the government by private operators such as Jio, Airtel, and Vodafone Idea, who pay licence fee, spectrum usage charges and auction money.

According to officials in the know, For FY25 as well, DoT’s actual receipts are expected to be around Rs 50,000 crore from licence fee and spectrum payments, and the remaining amount towards spectrum-related adjustments from BSNL.

Last year, the government approved the third revival package for BSNL with a total outlay of Rs 89,047 crore. It included allotment of 4G/5G spectrum for BSNL through equity infusion. Prior to this, in 2022, the government had approved a second revival package for BSNL/MTNL amounting to Rs 1.64 trillion.

The Budgetary adjustments for the same are made over the years. In FY25, the government will adjust Rs 82,916 crore towards BSNL spectrum allotments from the earlier revival packages, as per the Budget document. Financial Express