Top gear makers may warm up to Centre's PLI scheme for telecom sector

Some leading telecom equipment manufacturers might be interested in the government’s Production Linked Incentive (PLI) scheme announced on Wednesday.

They include Nokia and Ericsson, Singapore-based electronics manufacturing service company Flex (earlier named Flextronics), Taiwan's Foxconn, besides Jabil Inc, Cisco, Ciena, and Samsung, which is a telecom vendor to Reliance Jio.  

Under the PLI scheme, companies will enjoy a 4-6 per cent incentive annually across five years on their production value in India, provided they make incremental investments.

The government has provided for an outlay of Rs 12,195 crore over five years for the scheme and will offer it to five companies.

Nokia India, which has a manufacturing plant near Chennai, already earns 50 per cent of its revenues from exports. The company recently announced that it was exporting 5G radios.

Sources said Nokia is expecting to use about 70-80 per cent of its capacity in the existing plant and will be looking for further expansion.  “We hope these incentives will give the right impetus to the telecom manufacturing eco-system in the country,” said a Nokia spokesperson.

Jabil manufactures 5G-enabled radios for Ericsson but a spokesman for the latter declined to respond beyond saying  ‘we welcome the PLI scheme, however it is premature to comment on specific plans’.  

In an earlier interview with Business Standard, Ericsson India MD Nitin Bansal had said that while the company would like to export more from India and could easily scale up, they wanted to get credit for the investments they have already made in capacity which is still surplus. Experts say the PLI policy has, to an extent, taken cognizance of this issue.

Neither Flex nor Jabil, Foxconn, Cisco, Ciena or Samsung agreed to comment when contacted.

To be eligible for the scheme, the minimum threshold investment has to be Rs 100 crore. If a company invests Rs 20 crore in a year, it will receive a PLI on the production value up to Rs 400 crore.

Once qualified, companies will be incentivized up to 20 times the minimum incentive threshold. This will enable them to utilize their unused capacity - a demand which players had put to the government.

The government expects the scheme to lead to an incremental production of Rs 2.4 lakh crore, with exports rising to around Rs 2 lakh and fresh investments of Rs 5,000 crore.

This expectation is rather high. Currently, according to the government, the telecom sector consumes over $10 billion of equipment, of which only $3 billion is made in India.  

India’s exports of telecom equipment were around Rs 30,828 crore in 2019-20 (till December). In contrast the import bill was to the tune of Rs 80,901 crore during the same period. 

Also, many experts say that the cost disability between India and its competitors, even after allowing for the incentive, is very high and does not make it cost-competitive.

For instance, India’s cost disability with Vietnam ranges from 8-11 per cent while that with China ranges between 17-20 per cent, according to the government’s own internal studies.

But several equipment manufacturers continued to be enthusiastic about the PLI scheme. “This is the first important step. We are talking with the government to reduce this disability with other measures too,” said a senior telecom executive of a global gear maker.