The Department of Telecommunications (DoT) has decided that 30 per cent of all purchases by telecom operators in the first year has to be sourced from domestic equipment manufacturers. DoT said by the eighth year purchases from such players should go up to 80 per cent but the manufacturer will have to match the price of the first lowest bidder.
The move will prompt foreign telecom manufacturers to set up base in India with a research and development facility. For Indian manufacturers the R&D rights will remain with the company. Commercial activities of the product IP shall be carried out by the Indian company and the revenues and commercial value derived from the global sales of the product or the IP will accrue to the company. The value addition for Indian products will be 40 per cent for first year and will go up to 60 per cent by the fifth year.
For products, which are assembled or manufactured in India but the product IPR belongs to a company registered outside India or that was developed abroad, the value addition will be 25 per cent for the first year and go upto 45 per cent by the fifth year. DoT will amend the unified access service license (UASL) conditions to include the provision of market access, value addition and auditing in terms of domestic products.
According to Trai’s estimates, the market for telecoms equipment is expected to grow from $12.5 billion in 2009-10 to $40 billion in 2020. At present, locally manufactured telecom equipment hardware contributes 12-13 per cent of the mobile operators’ needs and Indian firms account for only three per cent of this.
Domestic telecom manufacturers said this was a good move. “After oil, telecom equipment imports are the second largest foreign exchange guzzler for the country. This move will help in India following the Chinese model which encouraged domestic manufacturing of equipment. It will also help domestic companies to get more business.” Huawei Technologies said: “We are preparing to set up our own manufacturing plant in India. Currently, we contract manufacturing in some areas to Indian vendors.”
The new provisions include value addition norms to ensure foreign companies do not merely import equipment and make only small changes at the Indian facility. The policy defines a domestic manufacturer as a company that is registered in India and has a manufacturing facility in the country that could be involved in contract manufacturing. But traders are excluded. The policy was framed on the basis of recommendations by Trai and the Department of Information Technology. The proposal, however, will need the approval of the Telecom Commission.
The note from DoT said the service provider procuring over 10 per cent of the requirement of telecom equipment from Indian products should get a discount of 10 per cent of its license fee for the year. But, if the service provider fails to meet the criteria then it would have to deposit an amount equal to 10 per cent of the shortfall in the value of the equipment in the telecom research fund or telecom equipment manufacturing fund.