Govt plans spate of incentives to boost local telecom manufacturing, curb import dependence.

KOLKATA: The government plans to offer a slew of incentives to local telecom gearmakers, including an interest-free deferred excise duty payout option over a 7-year span, export sops, 10-year tax holidays and a Rs 1,000-crore telecom innovation fund.

The move aims at lending an impetus to domestic telecom manufacturing and reducing dependence on imported gear.

The 10-year tax holidays are proposed for domestic telecom product companies with units in special economic zones (SEZs), while the 10% export incentives have been suggested to encourage domestic producers to manufacture security sensitive telecom products that will have to be locally sourced for government-funded telecom projects under the preferential market access (PMA) policy, according to an internal government presentation seen by ET.

The Rs 1,000-crore telecom innovation fund, which may progressively be scaled up to Rs 5,000 crore, is in the works to provide seed capital to local telecom start-ups. The fund is proposed to be registered under the Securities and Exchange Board of India's Alternative Investment Fund (AIF) regulations. The telecom department is likely urge a trustee company, established under the Indian Trust Act of 1882, to operate the fund, the note shows.

The government also plans to "delicence small chunks of spectrum" for eligible local telecom gear makers with the requisite IPRs to test and develop homegrown technologies.

It is also likely to explore ways to reduce "high financing costs" and remove glitches in the "inverted duty structure on Information Technology Agreement (ITA) products triggered by dual use raw materials and components".

The latest overtures come amid expectations that the government will address the inverted duty structure jinx, under which finished goods are taxed at lower rates than the raw material. In fact, it is likely to do so in the next budget to boost manufacturing.

The government's plan to ring in new incentives is aimed to complement the Telecom Regulatory Authority of India's target of local telecom gear makers meeting 80% of India's telecom demand by 2020.

"A majority of network infrastructure equipment is imported" and "India is merely a screwdriver assembly operation for MNCs since very little value addition happens locally and the IPRs ( intellectual property rights) reside with foreign companies," concedes the government in the internal presentation cited above.

The emphasis on developing a robust local telecom manufacturing ecosystem is also aimed at reining in "huge forex outflows and GDP losses" triggered by India's huge import dependence.

For instance, in 2012-13, India imported Rs 27,223 crore of telecom equipment (including handsets, components and telecom cables)," according to data collated by the telecom department. DoT numbers further reveal that domestic telecom gear makers met merely 3% of India's aggregate telecom demand of Rs 54,765 crore in 2009-10.

Source : economictimes.indiatimes.com