Won't be able to meet targets, extend PLI by a year: Telecom gear makers

Global and domestic companies have petitioned the government to extend the production linked incentive (PLI) scheme for telecom and network products by a year. The scheme began on April 1 and lasts until 2025-26. Some of the companies have made it clear that they will not be able to meet their stiff incremental investment and production targets for the first year (2021-22). The reason, say equipment companies, is that the final government permission only came as late as November, leaving them with only four months to meet their targets. What’s more, global telecom gear makers.....
Global and domestic companies have petitioned the government to extend the production linked incentive (PLI) scheme for telecom and network products by a year. The scheme began on April 1 and lasts until 2025-26.

Some of the companies have made it clear that they will not be able to meet their stiff incremental investment and production targets for the first year (2021-22). The reason, say equipment companies, is that the final government permission only came as late as November, leaving them with only four months to meet their targets.

What’s more, global telecom gear makers who operate through contract manufacturers who have become eligible for PLI, complain that, with the spectrum auction now delayed till at least next May, the expected 5G orders for telecom equipment have not been sealed.

Without firm orders from telcos earlier, they say it is impossible for them to give orders to their contract manufacturers and impossible for them to risk incremental investments.

In fact, with most telcos now nearing the end of their 4G capex investments for buying network equipment, orders to telecom gear makers have not gone up, leaving no opportunity to generate incremental sales in FY’22.

Confirming this, an executive with a domestic PLI-eligible player said: “Yes we have asked the government to extend the five-year PLI scheme by another year, as we cannot meet the first year target. In the case of mobile devices, permissions were at least given in October and still they got a one-year extension.”

The government had cleared 31 companies (domestic and global) under the PLI scheme. They include Dixon Technologies, HFCL, Tejas, and global players like Jabil, Foxconn, Flextronics, Nokia etc. The eligible players had committed an incremental investment of Rs 3345 crore over four years and were to achieve incremental production of Rs 1.82 trillion. 

In the first year, each non-MSME eligible company has to make 20 per cent of its  total incremental  investment of Rs 100 crore over five years. It also has to show incremental sales which are, minimum three times and maximum 20 times, of its incremental investment for the first year. The incentive varies from 4-6 per cent.

Global companies say that, apart from the delay in spectrum auction and therefore in fresh 5G orders, government rules have virtually closed their market access to public procurement contracts. That is because, under the public procurement policy which gives preference to Make in India, they are required to have a value addition of 50 per cent to be eligible as class 1 suppliers for government contracts and 20 per cent to be eligible as class 2 suppliers.  

But since they have to import most of the key components that are not manufactured in India, their value addition is not more than 15 per cent.

A move by the Department of Telecommunications recently to allow assembled printed circuit boards in India from imported parts to qualify as ‘local content’ while calculating value addition, was kept in abeyance due to opposition from some domestic companies.

“Orders of 5G have not come, so there is no incremental revenue,” said the executive of a telecom gear maker. “And then we have no market access to the government, the railways or even BSNL 4G orders. There is a serious issue.”

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