The Telecom Regulatory Authority of India (TRAI), in a recent report, said that manufacturing telecom gear in India is 12-13% more expensive than in China. This is even after including the incentives that the companies get from the Production Linked Incentive (PLI) scheme. Even in Vietnam, it is 3% cheaper to manufacture the same telecom equipment compared to India. If the PLI benefits weren't considered, then the relative cost difference would shoot up by another 4% where India would be at the expensive end.
There are multiple reasons why it is costlier to manufacture the same equipment in India than in China or Vietnam. Firstly, compared to India, these countries have a much better and developed infrastructure for manufacturing and smooth supply chains for components. Then, the other countries also offer additional incentives such as subsidies and interest subvention.
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How Vietnam and China Enable Cheaper Manufacturing of Telecom Equipment than India?
TRAI studied the policies for the Vietnam market to understand how they are able to manufacture the equipment at a lower cost than in India. In Vietnam, many goods are exempt from import taxes. These include the ones that are imported for re-export and then the materials and equipment used for the production of export goods are also exempted. Further, any raw material or component that can't be produced locally is also exempted from import duties. Further, there are corporate tax benefits as well as credit incentives. Even China has policies in place that encourage more local production with several benefits.
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TRAI said, "Some stakeholders have claimed that domestic manufacturers are costlier in production than global OEMs because of higher value addition cost, in-sufficient availability of highly skilled manpower, lack of automated manufacturing facilities, additional cost due to foreign exchange hedging arrangements & cross-border duties on imported components, higher operational expenditure due to lacking economies of scale, and higher energy costs."
But it is not just this. The interest cost in India is also higher by about 5% compared to the international standards. To scale local production further and get the interest of MNCs (Multi-National Companies) to invest more in producing in India, the government and the regulator along with the stakeholders need to work in tandem to create the best environment.
