Production-linked Incentive (PLI) Scheme for Telecom & Networking Products Manufacturing in India

Introduction
India is the second-largest telecommunications market in the world (after China) in terms of subscribers and internet users. As per the Telecom Regulatory Authority of India (TRAI) data, subscriber base in the country stood at ~1.2 billion (as of August 2021), while internet users stood at ~825.30 million (as of March 2021). According to IAMAI (Internet and Marketing Association of India) and Kantar Research, the number of internet users in India is expected to reach ~900 million by 2025 on the back of rising demand. Affordable mobile data plans have enabled internet access to a majority population in the country and the rising number of internet users offer a huge opportunity for businesses and entrepreneurs to scale up and contribute to the overall economic growth. As per a McKinsey report, India is expected to have a digital economy of US$ 1 trillion by 2025, up from US$ 200 billion in 2018.

The telecom sector will likely play a significant role in this journey. The sector has catalysed the Indian digital economy and is projected to contribute 8% to the gross domestic product (GDP) by 2022, from ~6.5% in 2020. With smartphone users estimated at ~600 million in India (in 2020-21) and data consumption at ~14.6 gigabytes per user per month (in 2020-21), the telecom sector has contributed significantly to the country’s digital transformation by empowering citizens.

The Indian government aims to further strengthen the telecom sector by boosting domestic manufacturing, investments and exports of telecom & networking products.

Need for Production-linked Incentive (PLI) Scheme in the Telecom Sector
The telecom industry relies heavily on imports from foreign equipment vendors to cater to the domestic demand. As per TRAI data, in FY20, exports of telecom instruments from India stood at US$ 4.8 billion, while imports stood at US$ 14.2 billion. In the third quarter of 2021, ~80% of the Indian smartphones market was dominated by key foreign vendors such as Xiaomi, Samsung, Vivo, Realme, Apple and others. Key players such as Samsung led the mid- to upper-tier price segment (Rs. 10,000-30,000 or US$ 134.80-404.39) with a 25% market share, while Apple led the premium smartphones market (>Rs. 30,000 or US$ 404.39) with a 44% share. For other foreign vendors such as Ericsson and Nokia, India is one of the top five revenue-generating countries. In the first half of 2021, Ericsson’s share of sale from the Indian market doubled from 2% to 4%.

In February 2021, the government introduced a PLI scheme for telecom and networking products to reduce import dependency and boost domestic production and exports. The scheme aims to transform India into a global manufacturing hub for telecom equipment by encouraging telecom players (including networking products manufacturers) to invest in India and incentivising investments made by foreign and domestic players.

The scheme aligns with India’s ‘Atmanirbhar Bharat’ (self-reliant India) and ‘Make in India’ initiatives. As telecom products play a significant role in the vision of 'Digital India’, the PLI scheme is also expected to help online infrastructure.

Details of the PLI Scheme for the Telecom Sector
The production-linked incentive (PLI) scheme for telecom & networking products was announced with an outlay of Rs. 12,195 crore (US$ 1.65 billion) for a period of five years until FY26. It aims to form global champions in the Indian telecom sector that can potentially scale up by leveraging cutting-edge technologies and penetrate the global value chain.

The scheme will incentivise industry players to incrementally invest in India, effective from April 1, 2021. Investments made from April 1, 2021 to FY25 will be eligible to get support under the scheme until FY26.

The government encourages both MSME and non-MSME firms—including domestic and global companies—and players that manufacture products (e.g., networking products manufacturers) with indigenously developed technologies to apply for the scheme and benefit from it.

Eligibility criteria:

Applicants are required to comply with the minimum revenue criteria for eligibility under the scheme:

• The applicant firm may decide to invest in single or multiple eligible products.
• The scheme requires a minimum investment threshold of Rs. 10 crore (US$ 1.34 million) for MSMEs and Rs. 100 crore (US$ 13.44 million) for non-MSME applicants.
• The investment will not include any land or building cost.
• Eligibility will be further subject to incremental sales of manufactured goods (covered under the scheme’s target segments) over the base year (FY20).
• The scheme’s target segment includes the following products:
  • Core transmission equipment
  • 4G/5G next-generation radio access network and wireless equipment
  • Access and customer premises equipment (CPE)
  • Internet of Things (IoT) access devices
  • Other wireless equipment and enterprise equipment (for example: switches, routers, etc.)

Approved companies so far:

As of October 2021, the government approved 31 companies under the PLI scheme for telecom and networking products. Out of these 31 companies, 16 MSMEs and 15 non-MSMEs (including 8 domestic and 7 global companies) eligible for the scheme.

The eligible companies are as follows:

Impact of the PLI Scheme
The approved 31 applicants have committed to investments worth Rs. 3,345 crore (US$ 452.73 million) in the next four years in India. This is expected to generate incremental production of ~Rs. 1.82 lakh crore (US$ 24.63 billion) and employment of >40,000 individuals over the scheme period. Also, the scheme is expected to enhance domestic research & development of new products, which is expected to attract ~15% of the total committed investment.

As per the Department of Telecommunications (DoT), full utilisation of the scheme funds is expected to result in an incremental production value of ~Rs. 2.4 lakh crore (US$ 32.01 billion) and exports worth ~Rs. 2 lakh crore (US$ 26.67 billion) over the next five years.

The Road Ahead…
The PLI scheme for the telecom sector has been well-received by global players. In addition, the Indian government has been taking measures to boost foreign investments in the sector. For instance, as of October 2021, 100% foreign direct investment (FDI) in the telecommunications sector is allowed through the automatic route compared with the previous 49%. The telecommunications sector in India is the third-largest recipient of FDI inflow. Between April 2000 and June 2021, FDI inflow in the telecom sector stood at US$ 37.98 billion, contributing ~7% to the total FDI inflow in the country. The 100% FDI allowance is expected to ease approval procedure and reduce time taken by foreign firms to invest in any telecom services provider in India.

The PLI scheme also aligns with the ‘Atmanirbhar Bharat’ (self-reliant India) and ‘Make in India’ initiatives. Key Indian players, such as Bharat Sanchar Nigam Limited (BSNL), Bharti Airtel and Reliance Jio, are focusing on homegrown solutions to expand 4G networks and implement 5G networks in line with these initiatives.

Backed by supportive initiatives taken by the government and private players, the PLI scheme for telecom is expected to not only establish a vibrant ecosystem for domestic vendors, but also benefit global players. This is likely to create a win-win situation for all and contribute to further growth of the Indian economy.