Government likely to insist on 100 percent domestic sourcing for telecom projects worth Rs 36,000 crores

April 18, 2012

The government is likely to insist on 100% domestic sourcing for three major telecom projects worth nearly Rs 36,000 crores shutting off foreign vendors who were hoping to bag a chunk of these contracts.

Citing security concerns, the telecoms ministry has decided to approach the Union Cabinet seeking its approval for keeping foreign vendors out of ‘sensitive projects’. This includes the Rs 20,000 crore initiative to lay optic fibre connecting all panchayats in the country, the Rs 15,000 crore project to build an alternate communication network for the defence forces and the Rs 600 crore secure network that is being built to ensure confidentiality between government departments across the country. Besides, the telecoms department has also decided that all future telecom projects funded from the Universal Service Obligation kitty must include 100% indigenous equipment.

In a related development, the telecoms department has also dismissed concerns raised by the Commerce Ministry and issued a cabinet note seeking approval for its proposed policy that will give preferential access and tax cuts to indigenously manufactured telecoms equipment. This policy also mandates that both state-owned and private mobile phone companies buy up to 80% of their networks hardware from domestic companies by 2020.

The telecoms department (DoT) has already approved sector regulator’s recommendations that mobile phone companies be mandated to source 80% of their network equipment and other related infrastructure from domestic manufacturers by 2020. But this also includes network and other hardware produced by the manufacturing units of foreign vendors located in India.

Trai had also recommended that companies owned by Indians and located here get 65% of all telecom network orders by 2020. Put simply, the regulator had sought that manufacturing arms of international vendors such as Ericsson, Alcatel-Lucent, Nokia Siemens, Huawei and ZTE mongst others to account for only 15% of all equipment orders by 2020.

These new rules, aimed at making the country a mobile equipment manufacturing hub, will be part of the new telecoms policy that is set to be unveiled in April. The DoT has also agreed to Trai’s proposal that the new rules be implemented in phased manner. For instance, by 2015, mobile phone companies be mandated to source 45% of all telecoms equipment domestically, and Indian companies must account for 25% of this.

The proposed new rules also states that mobile phone companies that fail to secure network related hardware domestically will be subject to financial penalties equivalent to certain percent of their imports.

Domestic telecom equipment makers are also slated to get loans for five-year period on subsidized terms in addition to a 10-year income tax holiday and concessions on excise duty and VAT. The government also plans to set up a Rs. 10,000 crore telecom R&D fund and a Rs. 3,000 crore mobile equipment manufacturing fund to support local hardware manufacturers.