PLI scheme for telecom: DoT issues guidelines, caps expenditure on R&D

The DoT, or Department of Telecommunications, which on Thursday notified the guidelines for the production-linked incentive scheme (PLI) for manufacturing telecom and networking products, has capped the expenditure as investment that global companies can make on research and development (R&D), as well as transferring technology.
 
Leading global companies and EMS (electronics manufacturing services) players have shown an interest in applying for the much-awaited scheme.
 
The threshold investment is a key element that determines the financial incentive that a company will be eligible for under the scheme.
 
As part of the detailed guidelines, only 15 per cent of the expenditure on R&D and 5 per cent of that incurred in transferring technology will be considered investment for determining eligibility under the scheme.
 
If a company invests Rs 100 crore, it can account for Rs 5 crore as technology transfer and Rs 15 crore as R&D expenditure. 
 
Domestic companies are not worried.
 
Dixon Technologies Managing Director Sunil Vachani said: “This will give a big boost to domestic telecom equipment manufacturing and we will initially concentrate on equipment like wifi and routers. We think the ratio is reasonable.”
 
Dixon has said it will apply for the PLI in a joint venture with Bharti. Vachani said the caps on R&D and transfer of technology were understandable because the focus of the PLI was on incentivising manufacturing.

“It’s a manufacturing PLI and not an R&D-focused one. So the focus here is to build plant and machinery and assets and produce more.”
 
However, a senior executive of a global telecom gear company said: “The move has been made to plug the possibility of some global companies claiming large amounts as transfer of technology, which are repatriated to their global headquarters, and also R&D expenditure as investment instead of putting adequate money in plant and machinery and creating assets.”
 
Under the scheme, the threshold of investment for being eligible for global companies will remain Rs 100 crore in four years and Rs 10 crore for MSMEs with a certain percentage to be invested each year. However, to get the incentive each year it has to do minimum cumulative incremental sales over the base year, which is three times the investment or a maximum of 20 times for each year.
 
The incentives for global players will range from 4 to 6 per cent of incremental sales.
 
The government has earmarked Rs 12,195 crore under the scheme for five years. And while 10 applicants each among MSMEs and non-MSMEs will be eligible for the incentives, at least three among non-MSMEs will be domestic companies, the guidelines say.
 
To be eligible global companies must have revenues of Rs 10,000 crore while the stipulation for domestic companies is Rs 250 crore. The move by the government has come as a shot in the arm for local manufacturers.
 
N K Goyal, chairman emeritus of the Telecom Equipment Manufacturers Association, said: “The thresholds for investment have been kept reasonable. Also for the first time Rs 1,000 crore has been earmarked for MSMEs. We expect this will lead to additional production worth more than Rs 3 trillion.”
 
Sources said leading global telecom companies, which include Nokia and Ericsson, had shown an interest in the scheme while discussions were held with US-based CISCO, Siena, and a South Korean giant that had a large presence in the country.
 
US-based Jabil, Foxconn, and Flex, which are present in the country, and Sanmina have had discussion with the government. Domestic players like HFCL have announced they will apply for this. Another Indian companies expected to join is manufacturing firm VVDN, which has already tied the knot with Sterlite Technologies to manufacture 5G radios.