The Hindu : Telecom equipment makers seek level field

Online edition of India's National Newspaper
Saturday, Nov 22, 2003

Business

Business

Telecom equipment makers seek level field

By N. N. Sachitanand

BANGALORE NOV. 21. Ever since the liberalisation of the telecom sector under the first New Telecom Policy of 1994 and introduction of mobile telephony, India has been experiencing a rapid growth in the number of telephone connections. This growth has become exponential as a result of the recent drastic reduction in tariffs encouraged recently by the Telecom Regulatory Authority of India (TRAI).

For example, the number of mobile connections was 12 million till March 2003 and an equal number has been added in the last 6-7 months only.

Unfortunately, the telecom equipment manufacturing industry has not been a beneficiary of this rapid growth in telecommunications. According to N. K.Goyal, President, Telecom Equipment Manufacturers Association of India (TEMA), which has about 120 member companies, the cellular companies have till now imported all of their switching equipment (reported to be worth Rs. 15,000 crores) under the scheme of project imports which carries a concessional import duty of only 5 per cent. Indigenous equipment makers were priced out due to a 16 per cent excise duty on the exchanges and 15 per cent import duty on the imported components going into the equipment.

Even in the case of GSM handsets, the dice were loaded against the domestic manufacturers since the importers of handsets paid only 10 per cent import duty and 4 per cent Central Sales Tax, while domestic handsets were loaded with 10 per cent basic duty, 16 per cent excise duty and 4 per cent CST.

In 2002-03, according to Mr. Goyal, the average capacity utilisation of the TEMA members was a measly 25-30 per cent. The year would have seen sales of Rs. 15,000 crores worth of domestic equipment and Rs. 7,000 crores worth of imports.

It is only from April this year that the tax structure on handsets was tilted towards supporting domestic manufacturers by removing the basic and excise duties. As a result, domestic handset makers are now more competitive.

However, they still have to face the handicap of paying import duties on components, ranging from nil for semiconductors to 30 per cent for some materials.

The total number of phone connections is expected to climb from the present 64 million to 100 million by the end of 2005.

Mr. Goyal reckons that this will stimulate an investment of around Rs. 50,000 crores in the telecom sector in the next two years. If the domestic manufacturers are to partake of a substantial part of this bonanza, the Government has to rationalise the import duties on components so that they are less than that for finished equipment.

By 2005, as a signatory to the International Tariff Agreement (1) under the auspices of the WTO, India will have to bring the import duties on finished equipment to zero levels.

It is better that the Government prepares the domestic equipment manufacturers for this eventuality by appropriately bringing down the customs tariffs on components and raw materials from now itself.

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