Clarity on customs duty may boost local telecom gear manufacturing

The government expects a boost to domestic manufacturing of telecom equipment after a clarification around customs duty on various products, with companies likely getting a 25% fillip to make the products in the country instead of importing. An official in the Department of Telecommunications (DoT) said most products fall under the 20% customs duty bracket. But if firms start making the products locally as part of the telecom equipment production-linked incentive (PLI) scheme, they won't have to pay duty and will also get another 5% in financial incentives.

However, the industry wants the government to exclude telecom equipment entirely from customs duty as around 85% of the gear is imported and that is disrupting the cost effectiveness as telcos roll out 5G across the country.

At the start of FY24, the government tightened rules on customs duty payments by telecom gear importers in a bid to plug leakages to the tune of ₹500-1,000 crore, a move which affects equipment such as routers, modems, set top boxes amongst others shipped from overseas.

The government amended and deleted certain harmonised system (HS) codes in the Customs Tariff Act to plug the leakages and clear the air around custom duty payments by importers.

In absence of clarity around identification, many telecom products were earlier being imported at lower duty. The government has not made any changes to the custom duty rates but provided clarity in identifying products and removed redundant categories.

As a result, the government now feels that most of the equipment imported earlier could now be manufactured here as it would be expensive to import. Companies like Cisco are expected to commence local manufacturing to join the likes of Nokia, Jabil and Samsung, among others. "In a nutshell, it will be 25% boost to firms to make telecom equipment in India," an official told ET.

"Since around 85% of the telecom equipment in India is presently imported under Chapter Head 8517, owing to unavailability of the required manufacturing facility here, this high rate of customs duty is greatly disrupting the cost effectiveness of the telcos," Cellular Operators Association of India (COAI) DG SP Kochhar told ET.