The Telegraph
Monday , June 16 , 2014
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Thrust on telecom gear hub

New Delhi, June 15: The Narendra Modi-government plans to undertake a sustained drive to make the country a hub for the manufacture of telecom equipment as this can significantly curtail the trade deficit.

It plans to offer tax incentives to new players and set up exclusive industrial parks. Besides, the new government wants a structured set-up for import duties and policies that offer incentives to local production by making the import of finished products costlier.

A structured tax set-up, which imposes higher taxes on finished capital goods and electronics and lower tax on components, may be introduced from July.

At present, finished telecom equipment attracts zero duty but a levy of 10-15 per cent is imposed on components. The idea is to change this inverted duty structure to make local production more attractive.

A similar policy on encouraging components had been successful in automobiles in the 1990s. However, in telecom, this has not taken off even as the government had been mulling over this since early 2000 when Murasoli Maran was the telecom minister.

The plan was not successful mainly because of a piecemeal approach by the government. Till now, around $12.8 billion has been invested in telecom equipment manufacturing, with 75 per cent of the FDI coming in during 2007-12. However, this is considered small by global standards.

India had also planned a $1-billion venture capital fund for telecom equipment. The government may accept the plan, floated earlier this year by the National Manufacturing Competitiveness Council. It will help to fund not only manufacturing facilities but also technology innovation.

The country imports electronics goods worth $21 billion annually, of which mobile phones account for $6 billion. Trade analysts calculate electronic gear import alone will surpass oil imports by 2020 and will reach an astounding $300 billion if the current growth trends continue.

“Simply speaking, we cannot afford this. India is one of the biggest markets for these goods and manufacturers need to understand that we cannot allow all our forex resources to be drained away to prop up manufacturing in Taiwan and Norway,” officials said.

An earlier move to encourage made-in-India telecom gear had incensed western companies such as IBM and Cisco. They had engaged diplomatic missions to lobby against the policy and either scrap or delay it on the grounds that it flouted WTO norms.

However, officials of Chinese companies, against whom these policies were initially designed, have in private conversation with Indian policy makers communicated that they would be only too happy to set up plants in India or increase the local content in its existing facilities that supply telecom gear and power equipment to buyers such as Reliance and Adani.