European telecom gear vendors Ericsson and Nokia said that they have flagged issues related to custom duty on components for telecom equipment, which will impact the cost effectiveness of local manufacturing at a time when the duty on finished product hasn’t been increased correspondingly.
The Indian government recently increased custom duty from zero to 10-20% on various components, including PCBA, base station controller, system module and cables among others that go into manufacturing of telecom equipment. There is 10% surcharge applicable on the custom duty.
These components are not locally available in India and vendors are forced to source them from global sources. They recently told the DoT that the duty change in custom notification has resulted in increased duties of items (components) used in manufacturing of finished telecom network equipment like Radios, Baseband and Microwave.
The vendors told that department that the impact is significant and has led to an overall increase of 5-6 % in the local manufacturing cost of Radios, Baseband & Microwave.
“We have requested for reconsideration through industry bodies. It will pose a challenge in terms of cost increase for production in India,” Nitin Bansal, Managing Director, India Head-Networks, Market Area South East Asia, Oceania and India at Ericsson told ET.
Nokia’s India head Sanjay Malik said that the duty hike will increase the overall cost of production in India. he added that the company has also raised the issue with the authorities, including the telecom department.
“On one side you want to increase manufacturing in India. On the second side, we don’t have the local component suppliers and then we increase duty on some of the components which are coming in. It will not go well together…it is not beneficial for us with a large manufacturing set up. It requires a holistic review,” Malik said.
The recent budget also imposed duties on high value items like Filter Units, Diplexers, Diecasting etc. Equipment vendor said that these components do not have a manufacturing ecosystem in India and hence it is necessary to import them to manufacture the finished products like Radios, baseband, and microwave.
Vendors said that this is also leading to increase in the overall cost of manufacturing in India compared to the import of finished products.
While Nokia will be applying for the production-linked scheme for telecom and networking products, Ericsson said that it is currently evaluating the scheme and its guidelines.
Nokia will be applying for the scheme. The details are being worked out. We have a large manufacturing base for radio here. With the scheme, we can continue feeding the world market through the local factory and take the incentives,” Malik said.
Ericsson’s Bansal said that the company’s Pune facility is making both 4G and 5G equipment for both domestic market and for export purposes. “…we are still evaluating the policy as per requirement. The intent is there. The whole ecosystem will develop and make it much easier for people like us to manufacture in India.”
Back in April, the DoT had said Ericsson and Nokia were keen to expand their existing operations in India for global supply chains, while Samsung, Cisco, Ciena and engineering manufacturing service companies like Jabil USA, Foxconn Taiwan, Sanmina USA, and Flex USA had also shown interest in setting up manufacturing units in India.
Local companies HFCL, Coral Telecom, Sterlite, Dixon and VVDN Technologies also plan to expand their facilities.
Earlier this month, the DoT issued detailed guidelines while opening up applications for telecom equipment and networking products manufacturers to apply for the PLI scheme.
Under the plan, 10 large manufacturers and 10 MSMEs will be selected to receive incentives worth Rs 12,195 crore over a five-year period by achieving stipulated production targets. Of this, Rs 1000 crore have been set aside for the 10 MSMEs, three out of which will be domestic companies.
The scheme will cover products such as 4G/5G next-generation radio access networks, IoT devices, customer premises equipment, routers and switches.
ET recently reported that a section of local telecom gear makers were unhappy with that the Department of Telecommunications’ (DoT) guidelines for the Production Linked Incentive (PLI) scheme, which factors in a maximum 15% of the R&D investments, will only help companies that don’t plan on indigenous product development of telecom equipment, and will only lead to assembly.
They added that the scheme is skewed towards contract manufacturers at the cost of companies who are investing top dollars in R&D to develop products locally. Gadgetsnow