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R. Suryamurthy

A proposal by the Department of Telecommunications (DoT) to ease local content (LC) norms under India’s telecom procurement policy has triggered significant concern among domestic manufacturers, who warn that the move could erode the country’s ‘Make in India’ goals and increase dependence on imported technologies.

The DoT is currently conducting a public consultation—open until July 3—on amendments to the Public Procurement (Preference to Make in India) (PPP-MII) Order. The proposed changes aim to revise how LC is calculated for government telecom contracts, potentially allowing multinational corporations (MNCs) greater access to public tenders by redefining what qualifies as domestic value addition.

Industry participants fear that the revisions, widely seen as a response to sustained lobbying by global telecom majors such as Cisco, Ericsson, and Nokia, could reduce India’s role in telecom manufacturing to that of a low-value assembly base while disincentivizing local R&D and intellectual property (IP) creation.

Current Policy Favours Domestic Manufacturing

Under the current PPP-MII framework—last updated in October 2024—suppliers to the government are classified based on the share of domestic content in their products. Class-I suppliers, eligible for top-tier procurement preference, must meet a minimum 50% LC threshold. Class-II suppliers, including many benefiting from the Production Linked Incentive (PLI) scheme, require only 20% LC, but receive preference only when Class-I vendors are unavailable.

The policy covers 36 essential telecom equipment categories including routers, optical fibre, GPON devices, and switches. Key exclusions from LC calculations include imported components, royalties, overseas technical service fees, and refurbished equipment. While Indian design and software contributions are permitted, they are capped to prevent artificial inflation of LC claims without substantive hardware manufacturing.

MNCs Cite Challenges, Seek Relaxation

Global firms have struggled to meet these thresholds. A report by the Global Trade Research Initiative (GTRI) highlights that MNCs in India typically operate under low cost-plus models, with high-margin IP and design functions retained by their overseas headquarters. For example, Cisco’s India operations reportedly earn just 5–10% profit margins, compared to its global margin of around 65%.

Assembly and integration done in India—often outsourced to contract manufacturers—typically contributes just 10% of product value. Meanwhile, high-cost components such as semiconductor chips, memory, and printed circuit boards (PCBs) are largely imported, often comprising nearly half the total product cost.

In light of these constraints, MNCs have reportedly asked the DoT for several concessions, including:

    Higher credit for Indian software and design work, even if the IP resides abroad.

    Exclusion of imported components from LC calculations where no domestic alternative exists.

    New qualification criteria to recognize firms as ‘local suppliers’ based on software development or product integration, even if hardware is fully imported.

    Looser manufacturing thresholds, allowing minimal assembly or bundling to qualify for Class-I status.

Potential Policy Shifts Under Review

The DoT is reviewing four areas as part of the consultation: updating the covered product list, lowering LC thresholds, reassessing the treatment of Indian software/design work, and changing LC calculation rules for software bundled with imported hardware. If adopted, these changes could allow companies importing high-value components to claim local supplier status based on limited domestic operations.

Critics argue such a shift would undermine the intent of the PPP-MII order and the Preferential Market Access (PMA) framework—both of which aim to encourage domestic innovation and reduce strategic reliance on foreign telecom systems.

Domestic Manufacturers Warn of Uneven Playing Field

Indian telecom firms—including Tejas Networks, HFCL, CDOT, and Lekha Wireless—warn that loosening LC norms would tilt the playing field in favour of foreign competitors who conduct limited local operations. Companies that have made long-term investments in manufacturing, design, and IP development say they risk losing government market share if the definition of “local content” is diluted.

“This dilution would discourage genuine IP creation in India,” said an industry executive on condition of anonymity. “If Class-I status can be achieved through superficial assembly or software layering on imported goods, India risks becoming a logistics base rather than a tech manufacturing hub.”

There are also concerns that easing LC norms could create backdoors for “white-labelling”—where foreign firms rebrand imported goods for government procurement—weakening PLI incentives and jeopardizing national goals around digital sovereignty and indigenous capacity-building.

Expert View: Support for Reforms with Safeguards

Prof. N.K. Goyal, Chairman Emeritus of the Telecom Equipment Manufacturers Association of India (TEMA), acknowledged the DoT’s intent to modernize the product list but cautioned against diluting value addition standards. “Difficulties in meeting 50% VA [value addition] targets exist,” he said, “but that is the essence of the DPIIT scheme. If we focus only on what’s difficult, we’ll never achieve Make in India.”

He added that current government incentives—such as PLI, the Chips and Semiconductor Mission, and the Electronics Component Manufacturing Scheme—are aimed precisely at addressing those challenges. “The way forward is not to remove the 50% threshold but to lay out a realistic roadmap for reaching it.”

Decision to Define India’s Telecom Trajectory

As the July 3 deadline approaches, the DoT’s decision will carry significant implications. A policy recalibration that weakens LC definitions may provide short-term procurement flexibility—but at the risk of long-term damage to domestic manufacturing goals and strategic autonomy in a sector closely tied to national security.

Whether the government chooses to uphold its self-reliance agenda or bow to external pressures will define the next phase of India’s telecom industry—and possibly, its technology future.

(R. Suryamurthy is a senior economic journalist based in Delhi.)

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