Amendment to DoT’s Public Procurement Policy: Assemble or Manufacture?

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India’s Department of Telecommunications (DoT) has amended the Public Procurement Policy 2017 and allowed companies, national or international, to get products assembled in India, and become eligible to supply for public projects. On the other hand there are PLI schemes offering thousands of crores in incentives for promoting electronics manufacturing in the country. Is the new amendment against the dream and vision of India’s Prime Minister Narendra Modi?

India, during the last two years, has emerged as one of the most ambitious countries of the world. The Covid 19 outbreak, that caused havoc all over the world, continues to be one of the prime reasons fuelling the dreams of achieving self sufficiency (atma nirbharta) for the country. During the last 18 months, the country has announced Production Linked Schemes, one after another, and electronics manufacturing, if not on top, does take one of the top spots for being a self-sufficient sector. The amount promised in incentives for the electronics sector is north of Rs 90,000 Cr.

However, with the recent amendments made to the Public Procurement Policy 2017, the authorities of the country seem to have taken a step back. Maybe for the good, may be for the bad, the Telecom Equipment Manufacturers Association of India (TEMA), is of view that the new amendment to the Public Procurement Policy 2017 Make in India (PPP-MII) is not in harmony with the Prime Minister’s dream of Atma Nirbhar Bharat.

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“The issue of reducing products from 36 to 25 is understable, as more than a year was invested by DOT on this but allowing 100 per cent import of components to qualify for PPP MII does not appear to be understandable. Likewise, the issue of R&D, Indian design, local contents have always been supported by the authorities,” notes Prof NK Goyal Chairman Emeritus TEMA.

The amendment in question, announced via 31.8/2021 Notification, notes that several telecom products (25 precisely) count as local products even if they constitute imported components for domestic manufacturing. The notification enables public procurement of such goods by government bodies like Railways and BSNL, to procure such components for public projects.

“TEMA considers this to be a retrograde step that has resulted due to a DoT Notification, which has permitted 100 per cent import from China and other countries and made them eligible for PPP-MII, by simple assembling without even having 0.1 per cent of local components and without any emphasis on R&D, Design Development or IPR,” says Prof Goyal.

While the list of 25 telecom products that can be made from the imported components includes satellite phones, broadband equipment, optical fibre cable, modem, routers, core network routers, broadband equipment, mobile antennas and more, there is also a PLI scheme for telecom products running which includes crores of incentives, and aims to promote local manufacturing of the same.

The amendment for several years

Though the amendment made to the policy has drawn flak from various associations and individuals, the Department of Telecommunications (DoT) in its notification has clarified that the same will be reviewed once a semiconductor FAB is operational in India. It might simply mean that the amendment will be in place for next three years at least given that work on establishing a FAB starts within a month in the county.

A semiconductor FAB, to be setup, tested and operational, in general cases, takes at least three to four years and millions of dollars worth of investment. It is good to know that the authorities of the country have requested expression of interest for setting up such fabs in the country but it has been more than nine months that work on that front has also stalled due to reasons only known to the government of India.

As a matter of fact, Israel-based Tower Semiconductor had recently written to Prime Minister Narendra Modi, requesting intervention on fast tracking around the same EOI. The company had expressed concerns over the delay in the project and said tht it might be unable to stay active for the semiconductor project in India. On the better side, ISEA has noted that more than 20 countries had shown interest in setting up a semiconductor fab in the country.

“Specifically mentioning that this shall be reviewed when FAB in India is operational, is a commitment to keep the 100 per cent imports allowed for several years, due to uncertainties of FAB,” Prof Goyal.

Prof Goyal further debates that the progress of any country depends upon its local manufacturing power, and he states that as the reason why the likes of China, USA, South Korea, Finland, Sweden, Japan, France etc. are pacing way ahead of other Nations as the imports are way less than the export due to local manufacturing capacity.

He says, “All this progress happened because of an extreme support by the Government to the local Companies. Earlier and even today, the same support to domestic manufacturers is provided by various Countries. That is the reason that these Countries today are large net exporters of electronic goods and components.”

Assembly or manufacturing

While there is no rocket science in understanding the fact that every nation imports electronic components for fulfilling its needs, it takes a little brain exercise to gauge that despite these imports such countries manage to stay on the top of the table because their export revenue is much bigger than what they import. Additionally, a lot of the government agencies working in such countries make it a mandate to procure goods from local companies for establishing public projects.

For instance, China imported electrical equipment and machinery worth US$548.7 billion in 2020. It, on the other hand, exported electronic equipment worth US$710.12 billion during the same year. India, in FY 2020, imported electronic products valued at over Rs 3.7 trillion. These included telecom instruments, electronics components, consumer electronics and a lot of other things. The country, in the same year, exported electronic goods worth over Rs 829 billion.

The difference between the exports and import figures of the two countries is mainly due to the ‘local value addition factor. In simple words, countries like China are doing much more than mere assembly of products to gain superiority in their export figures. The simplest example of local value addition can be given through the “the fruit jam”. A country importing fruits and making jam out of it is doing more local production than a country importing containers of jam, and packing them into already imported small packs of jam.

Now, the new amendment to the policy states that if Printed Circuit Board Assembly (PCBA) and testing from imported/domestically manufactured parts and components using Surface Mounting Technology (SMT) process is done in India, then imported/domestically manufactured parts and components will be qualified for the purpose of Local Content.

“If the basic components of the assembly are 100 per cent imported from foreign but assembled here locally, then by virtue of above clause, this is considered as locally manufactured product duly qualified for PPP-MII. This cannot let the assembly (with total costs) be qualified as Local Content or Make in India,” notes Prof Goyal.

He adds, “Notifications like these will surely suppress the zeal and motivation of local Companies to grow and develop.”

TEMA is of further view that the new amendment will lead to India’s domestic add (local value add) as zero. The same might also make India seen as a country of assembling such products where the assembling cost is paid by the government under different PLI schemes. This is despite the fact that the likes of Tejas, Coral Telecom, Vihaan Telecom Limited (VNL) etc. have the capabilities and capacities to Make in India with much less foreign imports.

“This policy defines CKD assembly with 100 per cent imported components (irrespective of country of import and may be China) as an Indian product qualified in all Government purchases as a Class 1 Domestic Manufacturer. This is because there is no requirement or percentage prescribed for domestic components,” explained Prof Goyal.

He adds, “It has done away with any need of domestic IPR or Indian technology or even design requirements, for which industry has fought tooth and nail for the last several years. So, now India will graduate from being a trading economy to CKD assembly of foreign products where assembly charges are paid by GOI, if eligible for PLI.”

Without naming any telecom products manufacturing company, TEMA clarifies that several of these have already written that they have successfully managed to achieve over 50 per cent in domestic content. In high technology telecom products, active imported components constitute about 30 percent of the cost hence more than 50 per cent domestic value addition is achievable by Indian design Companies.

However, the new amendment as TEMA debates, has put an end to all the efforts done by the Indian companies by eliminating requirements of local value addition. The amendment also seems to have overridden the DPIIT policy where class 2 supplier is mandated to offer products with a minimum of 20 per cent local value add in terms of domestic content, as under the new amendment no amount of domestic content is needed

“This indicates that somehow the decision has been misled by some officers in DOT for some pecuniary benefits and vested interests,” sayd Prof Goyal.

“This new policy puts fully imported products assembled in India at par with Indian designed and manufactured products thus putting up a severe blow to the Prime Minister’s vision of creating AtmaNirbharBharat. Now the Indian design and manufacturing industry will die a natural death,” he adds.

The new amendment might result in a lot of local players losing business in terms of procurement orders for government projects as international players, especially those from China, can easily offer products mentioned in the list at much lower prices than their Indian counterparts. They have a developed ecosystem of building such products back in their country where such an ecosystem has only recently started opening its wings in India.

However, it is also worth mentioning here that the likes of Cisco, Nokia and Ericsson have demanded to be treated at par with their Indian counterparts in the past. BSNL, the state run telecommunications company, had earlier notified that it will be testing the quality of telecom equipment manufactured by Indian companies before letting them participate in the upcoming 4G tender.

BSNL employees had earlier criticised the government for forcing the company to purchase telecom equipment from India-based manufacturers. The employees had called equipment manufactured by these as sub-standard.

National security

The United States of America became the first nation to set an example when it comes to doing technology business and setting the expectations straight when it comes to national security. There are several China-based firms that have been barred from doing any type of business with the companies and authorities based in the States. Not only that, the US has mandated organizations to take prior approval of the Pentagon if any kinds of technology transfers are scheduled or required with China.

India, on the other hand, has now made it possible for companies to sell telecom products mentioned under the list, assembled entirely from components sourced from China. Such companies will also be eligible to supply to Indian authorities for public projects. This is despite the fact that the government of India has permanently banned more than 55 Chinese apps. These apps were banned as they were seen as “prejudicial” to India’s sovereignty, integrity and national security.

“All talks of need for domestic designed products for National Security will get sidelined. Under DOT notification, it is possible to import 100 per cent components from China or other foreign countries and assemble them in India in a contract manufacturing EMS Company and become eligible for Make in India PPP MII. It may be recalled that import of CKD/SKD is allowed under border country rules,” explains Prof Goyal

“Of course, in case of procurement by TSPs, the National Directive on Security in Telecom will be applied, but for non TSPs, the field is wide open,” he adds.

Moreover, the compulsory specifications by Telecommunication Engineering Centre (TEC) clause, has also been removed via the new amendment. TEC was also mandated to implement testing under Indian Telegraph Amendment Rules, 2017.

Prof Goyal notes, “This pays ways for the procurement to be made based on any standard, specifications prepared self or by any body of any nature. Of course, foreign specifications are barred in DPIIT PPP MII.”

No consultation with associations

DoT did not consult with the likes of TEMA or TEPC, or any other such organisations before announcing this mandate. These associations represent the likes of Tejas Networks, Coral Telecom, Vihaan Telecom Limited, and more such organisations when it comes to policy making or interacting with the government on the behalf of the industry.

The general practice otherwise has been to consult with such associations, as the same enables the local industry to put forward its word and suggestions in front of the government.

“Surprisingly the 100 per cent import of components not only has been allowed, but has also been ensured at least for next 4 to 5 or more years, by putting a statement in the clause 5 of the policy “This shall be reviewed when the semiconductor FAB in India is operational.” We all know the availability of FAB in India has been under discussion for the last about 10 years. Of course, it has received more emphasis now, but it is a mirage because of several International ramifications. This clearly is a move by an officer of DoT for pecuniary benefits and vested interests,” says Prof Goyal.

He concludes, “This policy is completely against domestic Industry, anti AtmaNirbhar Bharat and anti policies of our Hon’ble PM Shri Modi Ji and TEMA requests that DoT must take note of this and recall it immediately and remove anomalies to support Indian Companies.”

Mukul Yudhveer Singh is Biz Editor With Electronics For You

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