Chennai: The government plans to bring down the local content requirements for manufacturing electronics and telecom products. Experts find that this will turn India into a low-value assembly hub and discourage Intellectual Property creation.
Multiple reports by NITI Aayog, TRAI, MAIT and PLI companies indicate that India’s limited component ecosystem poses challenges in achieving 50- 60 per cent local content in electronics and telecom products. Recognizing this constraint, the conditions for local content qualification also require a review, the government said in a notification, which sought suggestions from stakeholders on the same.
However, the industry finds that this will further bring down the value addition levels in India. According to India Electronics and Semiconductor Association, despite increasing exports, value addition in electronics is less than 18 per cent due to the dependency on imports.
According to GTRI, multinational companies like Cisco and Ericsson are lobbying to ease local content requirements, as they struggle to qualify as Class-I local suppliers for government tenders for products, including routers, ethernet switches, GPON devices, media gateways, customer premises equipment (CPE), satellite terminals, telecom batteries, and optical fibre and cables.
They have proposed greater credit to be granted for design and software work done in India, even if the underlying IP remains foreign-owned and the work is conducted on a work-for-hire basis. They argue that hardware components which are not available from Indian suppliers—such as semiconductor chips, memory modules, and PCBs, which together account for roughly half of a product’s cost—should be excluded from LC calculations altogether.
They are seeking a change in classification rules so that companies can still qualify as ‘local suppliers’ even if the hardware is imported, as long as adequate software development or product integration work is performed in India. Lastly, MNCs are pushing for an overall relaxation of the rigid physical manufacturing thresholds currently required under the PPP-MII Order.
Lowering local content requirements will put Indian companies such as Tejas Networks, HFCL, CDOT, and Lekha, who have made long-term investments in Indian-based manufacturing, R&D, and IP development, at a severe disadvantage. Such Indian firms will face the prospect of losing market share to foreign MNCs who import products, finds GTRI.
It will discourage Indian firms from investing in genuine IP creation, as Class-I status could now be achieved simply through superficial assembly or software wrapping of imported goods. India will become a simple assembly hub once again.�
