“Telecom exports can be the next big growth area” March 2018 issue

“Telecom exports can be the next big growth area”

Telecommunications is one of the fastest growing sectors across the globe.  Telecom Equipment and Services Promotion Council (TEPC) has been actively working to promote India’s exports from this sector. In an exclusive interaction with The Dollar Business, Rakesh Kumar Bhatnagar, Director General, TEPC, talks about the issues plaguing the sector and the outlook for the future.

Ahmad shariq khan | February 2017 Issue | The Dollar Business

TDB: Does India have the required ecosystem for manufacturing telecom equipment and parts?

Rakesh Kumar Bhatnagar (RKB): Today, most of the value-addition in telecom equipment comes from design and R&D, which we have aplenty. We also have large and well-equipped electronics manufacturing services (EMS) companies to do the back-end assembly. Components are also available for products such as mechanicals, PCBs, etc. We have the ecosystem to create world-class products. What is missing though is the nurturing that is required to take a leap. India is better placed than ever before to play a big role in the global telecom equipment landscape. Software-defined networking is the next frontier.

TDB: What are the immediate priorities of TEPC?

RKB: Our immediate priority would be to ensure that a quantum jump takes place within the next 12 months as far as telecom exports are concerned. Consortium-based approach with the support of government credit lines alongside incentives and changes in duty structure can facilitate our exports growth. With improvement in standards and focus on R&D, we will soon see higher levels of growth in the industry. 

TDB: Major Indian telecom service providers import most of their mobile networking equipment. How can we reverse the trend?

RKB: Most equipment are imported with zero customs duty. Long-term credit offers are also available from many overseas equipment suppliers directly or facilitated by their government. Private operators in the absence of comparable financing options and incentives buy very little from the domestic market. Incentives can be introduced by the government to support made in India products through a reduction in annual license and spectrum fees based on the percentage of indigenous sourcing. These steps will give economies of scale to domestic companies.

 

"The coming years will see manufacturing in the telecom sector improve"

 

TDB: What support in terms of policy do you expect from the government?

RKB: There have been some policy hiccups. The Directorate General of Anti-Dumping & Allied Duties (DGAD) found that Chinese companies are dumping telecom products in India to kill the domestic industry. DGAD imposed a duty of 266% on imported products. Companies like Huawei, ZTE, Fiberhome, WRI were put under ADD. Today, after almost six years, the revenue collection is almost nil, as all products are getting imported by circumventing the anti-dumping duty. The other issues pertain to the imposition of 10% customs duty by the government on a few  products which was put to ensure most of the global OEMs start manufacturing in India instead of importing products. Again, the collection from the imposition of this duty is almost nil. Also, MEIS rates were reduced from 5% to 2%. To help the sector, it should be restored back to 5%. Disbursement of these incentives?too presently take months as they are disbursed only when 100% of payment from a customer is realised. This should be paid in stages and the payment should happen within 45 days, especially for Star Exporters.

Also, during the early nineties, when  the Information Technology Agreement (ITA) 1 was being negotiated, HS Code 8517 provided for telecom equipment referred to a telecommunication apparatus for “carrier-current line systems and digital line systems”. The scope has expanded since 2007 and resulted in increased coverage under this HS code. One of the important non-ITA items on which many countries have imposed basic duty is under HS Code 85176990 – ‘Others’. Presently most of the new technology products are imported under this classification, TEPC strongly recommends that highest rate of basic customs duty (BCD) needs to be imposed on the entire category. The ITA-2 has been signed by 24 member countries in 2015, but India is not yet a signatory to the agreement. And that is something we need to look into.

TDB: What is your take on the tax benefits on R&D expenses?

RKB: Some companies with R&D expenditure pay MAT. R&D tax benefit should be admissible against MAT in addition to income tax. Also, to support IPR generation and promote value-added manufacturing, incentives were provided to companies doing R&D in India at a rate of 200% of the weighted tax deduction of the R&D expense made. This was reduced to 150% during the last budget. It should be increased again.

TDB: What steps should be taken to successfully implement the ‘Make In India’ initiative for telecom sector? Is there any lacunae in the present policy?

RKB: The Preferential Market Policy notified for government procurement is an excellent policy to promote ‘Make in India’ but this is not being followed. The policy clearly states that for all government purchases and tenders, conditions should be kept such that domestic companies are not subjected to commercial or technical restrictive conditions that eliminate them from participating in the tenders. This was a proactive step taken by the government. In the telecom space, this methodology identified 23 product categories where Indian companies have the technology and the capacity to meet domestic demand. Most of the government’s requirements get covered under these products categories. Now instead of implementing this policy and making domestic companies stronger, tenders are being manipulated by insisting on foreign certifications like CE and UL whereas no Indian certifications from TEC, BIS, STQC is being asked for.

TDB: What are your thoughts on GST?

RKB: GST will be an excellent catalyst for the growth of economy. However, some issues in telecom segment need to be fine-tuned. As the Model GST Law currently reads, in the absence of an MRP-based valuation for telecom operators and specific exemption to the distributors, it appears that each leg of the sale of SIMs/ RCVs would be subject to GST. This would mean that the distributors and all retailers in the supply chain would get taxed. Telecom operators generally supply marketing and promotional material to distributors/ agents on free of charge (FOC) basis. As per the Model GST Law, goods and services provided free of cost by the service recipient would attract GST when the same would be supplied to the service provider. If the values of such supplies are again included in the taxable value of supplies by the service provider, an amount that has already suffered tax would again be taxed.

TDB: Amid the global slowdown, how are you helping your members?

RKB: Telecom exports can be a big growth area. There are over 150 countries globally investing in their national optical/broadband network and Indian companies can target them with G2G support. TEPC is focusing on this and is in talks with ASEAN, SAARC and African countries. The proposals encompass intra-country and inter-country digital connectivity, solar powered digital mobile village solutions, e-governance projects including e-health, e-education, technology solutions and setting up of training centres.