Budget impact: Duty on telecom products to push telcos' annual spend by Rs 3000-6000 cr

Jaitley proposed to impose a 10% customs duty on telecom products

Telecom operators are yet to see 'achhe din'. Their annual expenses will shoot up by atleast Rs 3,000 crore ($500 million), and may go up to Rs 6,000 crore, starting this fiscal year, with the finance minister Arun Jaitley proposing to impose a 10% customs duty on telecom products.

 

Indian telecom operators, who are sitting on acumulative debt of Rs 2.5 lakh crore, import telecom equipment worth about $8-10 billion every year, and the imposition of 10% duty comes as an additional burden.

 

To boost domestic manufacturing, Jaitley has proposed in his maiden Budget that 10% basic customs duty would be imposed on specified telecom products that are outside the purview of the Information Technology Agreement (ITA).

 

While the industry is yet to work outthe final numbers, almost all telecom equipment required for 3G and long-term evolution (LTE) networks and related infrastructure are imported."Companies import telecom equipment worth about $8-10 billion every year. The imposition of duty on telecom products would further increase infrastructure cost for telecom operators who arealready burdened with huge debt," said Rajan Mathews, Director General, Cellular Operators Association of India (Coai). 

 

Mathews said imposition of duty would justincrease expenses of the telecom companies, and would not increase domestic sourcing. "More than 90% of telecom equipment are imported, and advanced technology products are no way available in the domestic market. The very little that are being assembled in India, or being manufactured, are actually imported and packaged here," said Mathews.

 

On the other hand, NK Goyal, chairman, Telecom Equipment Manufacturers Association of India (TEMA), said, "This will go a long way to promote indigenous manufacturing of telecom equipment and creation of jobs." Over the next three year, said Goyal, the size of the India-made telecom equipment would cross Rs 25,000 crore.

 

According to TEMA estimates, the demand for telecom equipment in India was about Rs 76,940 crore in the fiscal year 2013 and companies are expected to invest about Rs 5,21,940 crore by 2020. In the fiscal year 2016, Goyal said,requirement of 3G equipment is expected to be worth Rs 10,130 crore while demand for 4G equipment would be 12,660 crore.

 

According to the Telecom Systems Design and Manufacturing Association (TSDMA), Indian companies that design and manufacture also have intellectual property, had just a about 3% share ofthe estimated Rs 50,000-crore telecom equipment market in 2012-13. Foreign companies, which have factories in India, would take this number to about 10%. 

 

But, all the foreign companies with factories here just limit value addition in India to system integration and packaging which would not be more than 10-11% of the value of the product.

 

Telecom equipment business in India is mainly controlled by five companies - Huawei, ZTE, Ericsson, Nokia Solutions Network and Alcatel. Companies did not want to comment on the issue.

 

As part of the Government's initiatives to boost domestic manufacturing, it had in February 2012 announced a preference policy in which 30% of the orders of government departments would be reserved for local telecom equipment makers, which would have to undertake a minimum value addition of 25%. The policy extended the quota to the private sector, too, asking it to source sensitive equipment from local manufacturers.

 

Local equipment makers, however, blame cost disadvantage of about 20-25% that they face as against the foreign companies. Finished telecom equipment, so far, imported at zero duty, but components bear a duty ranging from 10% to 15%. Indian telecom equipment makers also pay 16-18% interest on loans, far above their Chinese rivals. According to industry estimates, import from China has a 30% cost advantage.