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India on Wednesday offered telecom and networking equipment companies incentives worth 12,195 crore to boost local manufacturing, seeking to cut the nation’s massive dependence on imports of such gear.

The production-linked incentive (PLI), finalized after consultations with companies and other stakeholders, will reduce the country’s imports of telecom equipment worth over 50,000 crore, Ravi Shankar Prasad, minister for telecom, electronics and information technology, told reporters after a meeting of the Union cabinet.

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India, which imports 85% of its wireless telecom equipment, is currently preparing to roll out fifth-generation, or 5G, telecom services that will require telecom operators to make heavy investments in network infrastructure. The incentives, along with local demand, are expected to draw foreign companies to set up manufacturing units in India.

The government had in November offered incentives worth 1.46 trillion to 10 sectors, including for manufacture of automobiles and solar panels, after the success of the scheme for production of mobile phones launched in April 2020.

“The PLI scheme that was launched for mobile phones and components manufacturing in April 2020 has been quite successful, following which the government has decided to offer such incentives to the production of telecom parts as well," Prasad said.

The government will extend the incentive scheme to include manufacturing of other electronic devices such as laptops and tablets, Prasad said, adding that an announcement on this will be made soon.

The PLI scheme for telecom gear will cover manufacturing of equipment such as core transmission products, 4G/5G radio access network and other wireless gear, said an official statement.

The PLI programme aims to make India a global hub for the production of access and customer premises equipment, internet of things (IoT) access devices, other wireless products and enterprise gear such as switches and routers.

“The scheme is a fantastic move to advance the vocal for local agenda, generate employment and embed local manufacturing. A big positive to invigorate the ecosystem play for value addition and boost MSME market play in digital," said Prashant Singhal, emerging markets, technology, media, telecommunications-leader, EY.

Under the PLI scheme for telecom equipment, the government will give 4-6% incentive to eligible companies on incremental sales of manufactured goods for five years. Micro, small and medium enterprises (MSMEs) will get a 4-7% incentive in the first three years of production.

The base year is 2019-20 and the incentives are applicable from 1 April 2021.

The minimum investment threshold for MSMEs is 10 crore, while for larger companies, it is 100 crore, the statement said.

Finnish telecom equipment manufacturer Nokia Corp., which has a plant in Chennai, welcomed the government’s decision. “Nokia is already making in India a range of telecom equipment, from 2G to 5G, for domestic as well as global markets. We hope these incentives will give the right impetus to telecom manufacturing ecosystem in the country," said a Nokia India spokesperson.

The government has estimated that the PLI scheme for telecom gear will lead to an incremental production of around 2.4 trillion, with exports of around 2 trillion in the next five years.

The incentive scheme is expected to draw investments of more than 3,000 crore. It will create 40,000 direct and indirect jobs and generate a tax revenue of about 17,000 crore, Prasad said.

“We welcome this decision as this will further boost our efforts towards building a homegrown manufacturing ecosystem for open source and affordable 5G hardware. As we look ahead, time-bound implementation and disbursal of PLI benefits will play a crucial role in creating the desired impact," said Anand Agarwal, group chief executive, Sterlite Technologies Ltd.

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