Driving the telecom sector growth

Recognising its potential to propel India towards the USD 5 trillion economy goal, the budget lays down the foundation for robust telecom sector growth

On Wednesday, 1 February 2023, while presenting the Union Budget 2023 in Lok Sabha, Finance Minister Nirmala Sitharaman laid down the foundation of Amrit Kaal and specified seven priorities to act as ‘Saptarishi’ or the seven stars for guiding the vision of an empowered and inclusive economy.

The government has long recognised the telecom industry’s potential to propel India towards its goal of a USD 5 trillion GDP by FY 2025-26. While introducing 5G earlier this year, the Prime Minister described it as a significant step towards the objective of Viksit Bharat Abhiyan, the developed India mission. The Finance Minister announced the establishment of 100 labs for developing applications using 5G services. These labs will be set up in engineering institutions to realise the new range of opportunities, business models and employment potential. The idea is to leverage 5G technology to create applications in areas such as smart classrooms, precision farming, intelligent transport systems and health care. This clearly shows the government’s intention to encourage 5G use cases and help unlock a plethora of opportunities for the telecom sector.

To accelerate the vision of Atmanirbhar Bharat or self-reliant India, incentives provided by the government including the Phased Manufacturing program led to an increase of mobile manufacturing in India from 5.8 crores units (valued at Rs 18,900 crore) in 2014-15 to 31 crore units (valued at Rs 2,75,000 crore) in the last FY. With increased production, India’s mobile phone exports are expected to reach Rs 72,000 crore in the current fiscal year (FY23), up from Rs 46,400 crore in FY22. The domestic consumption of 5G smartphones over the next five years is projected to cumulatively touch a billion devices.

To further deepen domestic value addition in the manufacturing of mobile phones, the government has provided relief on customs duty on the import of certain parts and inputs like Basic Customs Duty on camera lenses; it has been waived off from 2.5% earlier. Besides, an extension of concessional duties was announced on Lithium-ion cells for use in the manufacturing of batteries or battery packs of cellular mobile phones up to 31 March 2024. Additionally, an extension of concessional duty up to 31 March 2025 was also announced for specific inputs and sub-parts for use in the manufacture of telecommunication grade optical fibre or Optical Fibre Cables (OFC).

To achieve the government’s vision of Digital India, the telecom sector requires massive capital outlay to fund the investment in the fibreisation of towers to roll out the 5G services and to extend the network reach to all parts of the country. To support this, the government has allocated Rs 2,158 crore for OFC-based networks for defence services and Rs 715.8 crore for telecom projects in the North Eastern states.

Visualising the growth of the telecom sector, the government has increased the expected revenue from the sector in FY24 to Rs 89,649 crores as compared to the revised estimate of Rs 68,784 crores for FY23. The increase of 30% in the forecasted receipts seems to be on account of the introduction of 5G and further penetration in the rural market. The anticipated revenue will also include collections from the auction of E and V Bands along with satellite airwaves. The proceeds from spectrum auctions done earlier are also a factor constituting the increased revenue estimate. Apart from this, the government eyes around Rs 25,000 crores on account of license fees (8% of AGR) and SUC charges.

A recent order directing one of the telecom companies to convert the NPV of the interest related to the deferment of spectrum auction instalments and AGR dues into equity shares to be issued to the Government of India spells out the commitment made as a part of the reforms package announced by the government in September 2021.

The various announcements and allocations in the Union Budget 2023–24 including the expansion of DigiLocker services have paved the way for a promising new era for the telecom industry and progression towards a Digital India.

By Peeyush Vaish

Peeyush is a Partner and Telecom sector leader with Deloitte India

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