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TRAI Recommendations on Promotion of Local Manufacturing: Well-meaning but More Could have been Done

Broadband India Forum (BIF) welcomed the TRAI recommendations for Promotion of Local Telecom Equipment Manufacturing for its realistic assessment of India’s true potential in Telecom Equipment Manufacturing and for delineating measures that would enable the sector to transition from high import dependency to become a global manufacturing hub. While having done so, it has glossed over some of the important measures required to pull the sector out of the limping state that it is currently in.

Commenting on the TRAI Recommendations, T.V. Ramachandran, President, Broadband India Forum said, “While TRAI must be lauded for the measures that they have recommended for promotion of local manufacturing of telecom equipment viz. simplification of the process for induction of new technologies/products  and for setting up trials & pilot projects, review of the PMA Policy including the Value Addition norms, so that it is aligned to market realities etc, however one is disappointed to note that the Regulator has overlooked some other key measures viz. Removal of Barriers for setting up Global R & D hub in India, distinction in treatment between Telecom handsets and Networking Equipment manufacturing , Robust IPR Framework to protect Technology & innovations , Respect for Protection of  international Patents ( SEPs), Focus on creation of world class Global Manufacturing hubs by promoting Make in India for the World and not just Make in India for India and to remove cost disparity in Exports from India

Focus On Innovation & R&D

Today, India’s domestic manufacturers remain largely reliant upon the innovations and standards set up by the international players and organisations. Consequently, Manufacturing value added (MVA) by Indian manufacturers, either OEMs or ODMs, is relatively small due to high dependence on imported components and completely built up phones. Considering rapid increase in smartphone penetration from current levels and large dependency on imports, a slew of measures around making India a Global R & D hub, having a robust IPR framework, focus on exports etc  is crucial for Govt’s flagship project -Make in India.

Different Approach For Manufacturing For Handsets vis-À-vis Networking Equipment

The other issue to consider is the distinction between telecom handset manufacturing and electronic manufacturing while formulating policy initiatives to boost local manufacturing . It is perhaps pertinent to state that while handsets are primarily in the ‘ low technology, mass market ‘ dominated B2C sectors, whereas the Telecom Networking Equipment manufacturing is essentially in a ‘ high & complex technology associated with low volumes ‘ B2B market with a limited set of consumers .

Telecom Handsets Manufacturing –Need To Incentivise Value Add

The reality of handset manufacturing in India is that there is not enough domestic investment occurring and the manufacturing consists mostly of producing knocked down sets; there is little value addition occurring (6%) locally.  Under the Govt’s PMP program, the primary objectives are that of promoting depth in the domestic manufacturing of cellphones and their components over a period of time, and that of substantially increasing local value addition in such manufacturing activities. However, the foundation of PMP rests on increasing customs duties for imported components. However, India’s ability to raise customs duty is limited. Therefore, a cleaner approach would be to give direct fiscal incentives to the manufacturers. BIF & EY in a joint study in 2016 had proposed to refund the GST paid to the manufactures as a fiscal incentive This would motivate Indian manufacturers to add more value since GST directly measures the value added by the manufacturers.

Telecom Networking Equipment-Need For Export Focused Strategy

However, the situation with network equipment manufacturing is very different. Due to high complexity in network equipment manufacturing, it is imperative for companies to establish manufacturing at global locations that can cater to as large a market as possible to achieve economies of scale by maximising volumes as the local market in India for networking equipment is a smaller market, in comparison. So, the growth of the sector is likely to be sluggish and local manufacturers would need to rely on exports.

The need for large market and scale directly translates into the necessity for increased focus on a ‘Make in India for the World’ strategy for telecom manufacturing instead of relying only on a ‘Make in  India for India’ strategy. However, to be able to compete in the export market, there must be an ecosystem in India that reduces export transaction cost thereby allowing  the manufacturer better margins, and thus make their equipment more attractive.

Strategy To Make India A Global R&D Hub

Local Telecom equipment Manufacturing  must have a special place for incentivizing local R & D. As the telecom industry is a fast paced and fast changing industry , we need to ensure that we provide all support to make India a global R & D hub to keep pace with the rapid change of technology.   Procedures & processes for  import of Capital equipment to set up R & D labs out of India need to be simplified. – CT Bureau

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