The Indian government anticipates a significant rise in the domestic production of telecom equipment following a clarification of customs duty on various products. The move is expected to encourage local manufacturers to produce products in the country instead of importing them. A Department of Telecommunications (DoT) official explained to ET that most telecom products fall under the 20% customs duty bracket. However, if companies begin producing the products locally under the telecom equipment production-linked incentive (PLI) scheme, they will not have to pay the duty and will also receive an additional 5% in financial incentives.
Nonetheless, the industry is urging the government to remove customs duty entirely from telecom equipment since around 85% of the gear is imported, disrupting the cost-effectiveness of the telcos as they roll out 5G across the country. At the beginning of the 2024 financial year, the Indian government tightened customs duty payment rules for telecom gear importers to curb leakages of between Rs 500-1,000 crore. This move affected equipment such as routers, modems, and Set-Top Boxes, among others, shipped from overseas.
Read More - Airtel Black Benefits: Revisiting in 2023
To plug the leakages and provide clarity around customs duty payments by importers, the government amended and deleted certain harmonised system (HS) codes in the Customs Tariff Act. The government did not change customs duty rates but provided clarity in identifying products and removed redundant categories.
The government now believes that most of the previously imported equipment could be manufactured locally as it would be more expensive to import. Companies such as Cisco are expected to start local manufacturing, joining the likes of Nokia, Jabil, and Samsung, among others. An official from the DoT stated that it would be a 25% boost to companies to manufacture telecom equipment in India.
According to the Cellular Operators Association of India (COAI), which represents India's top private operators, around 85% of telecom equipment in India is presently imported under Chapter Head 8517 due to the lack of the necessary manufacturing facilities. As a result, the high rate of customs duty is disrupting the cost-effectiveness of telcos. The COAI supports the government's move to exempt customs duty charges on telecom equipment, as it would be beneficial to import essential equipment, which would aid the pan-India expansion of telecom networks and facilitate the smooth rollout of 5G in India.