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Run-up to the Budget: Telecom Equipment Industry

Telecom equipment: State of the industry (2000-01)

• During the 2000-01 period, the telecom equipment sector is expected to increase by over 20 per cent, due to a high growth in the demand for telecom services, and an increase in the investments made by incumbent service providers and private sector participants.
• Following its corporatisation in October 2000, the Bharat Sanchar Nigam Ltd. (BSNL) is expected to make increasing equipment purchases in deferred payments, rather than on cash terms. BSNL is expected to invest largely on modernising its network. As a result, demand for new categories of equipment, such as dense wavelength division multiplexing systems, is expected to increase significantly.
• At present, the equipment industry is very fragmented, with a large number of cable, switching, transmission and terminal equipment manufacturers. Demand for equipment is expected to increase due to increasing private participation, corporatisation of BSNL, and demand for newer categories of equipment. However, only few vendors are expected to get significant share of the equipment orders. (Only vendors who can finance service providers, undertake turnkey contracts and have technological capabilities or collaborations, would be able to increase their market shares. These would include multinational and a few large Indian equipment manufacturers.)

Telecom equipment: Industry expectations from the Union Budget (2001-02)

• An increase in the duty differential: The Telecom Equipment Manufacturers' Association (TEMA), has asked for a duty differential of atleast 10 per cent between a finished telecom equipment and its raw material.
• A reduction in the central sales tax: The TEMA has asked for a reduction in the effective central sales tax on telecom equipment to 4 per cent, on par with the power sector. (Following the corporatisation of The Department of Telecom Services into BSNL, the central sales tax to be paid on equipment supplied to BSNL has been increased from 4 per cent to 12 per cent.)
• No customs duty on telecom software: The CII has asked that telecom software should be treated on par with computer software, and hence, be eligible for nil customs duty.

Telecom equipment: Market size

(Rs billion)	1999-2000	2000-01 E	Change
			(per cent)
Telecom cables	33.2	40.3	21.4
- Jelly filled telecom cables	29.2	36.3	24.3
- Optical fibre cables	4.0	4.0	0.0
Switching equipment	17.5	20.8	18.9
- Large switches	12.3	14.1	14.6
- Small switches	5.2	6.7	28.8
Terminal equipment	11.1	18.6	67.6
- Cellular and paging handsets	4.8	11.0	129.2
- Electronic push button telephones	2.2	2.7	22.7
- KTS and EPABX	4.1	4.9	19.5
Cellular infrastructure	7.0	11.8	68.6
Long distance transmission systems	5.4	6.2	14.8
Wireless access systems	1.2	2.0	66.7

E: Estimate
Compiled by CRIS INFAC

Telecom equipment: Duty structure

Item	1999-2000		2000-01
	Customs duty	Excise/ CVD	Customs duty	Excise/ CVD
Switching equipment	27.5	16	32.6	16
Optical fibre cables	27.5	16	21.2	16
Jelly filled cables	27.5	16	26.9	16
Cellular phones1	27.5	16	9.2	16
Pagers1	27.5	16	9.2	16
WiLL terminals	27.5	16	32.6	16
Microwave radio equipment	27.5	16	32.6	16
Import of specified categories of	5.0	16	5.0	16
telecom equipment by operators2

WiLL: Wireless in local loop 1 The excise duty is applied on the maximum retail price, after reducing an abatement of 40 per cent 2 Applicable for the import of the following equipment in 1999-2000 - For basic services: Wireless in local loop (excluding terminal equipment), HDSL, DLC and SDH systems
- For cellular mobile services: Switching apparatus, base station controllers, base transceivers stations, network management solutions, etc. (excluding handsets)
- For paging services: Paging control terminal, transmitter controller, paging transmiter, link transmitter/repeater, etc.
- For VSAT communications: Equipment (other than customer premises equipment) and network management system

During 2000-01, the concessional duties on import by basic service providers, were restricted to only HDSL equipment SACD is not applicable on the import of these equipment by the operators.

Notes

1. Customs duty includes a 10 per cent surcharge levied on the basic customs duty.
For 2000-01, the landed cost and customs duty include the SACD of 4 per cent, effective since 1999-2000. In 1999-2000, the SACD was applicable only for non-traders, and hence, has not been included in the customs duty.

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

Rediff-CRISIL Budget Impact Analysis

Budget 2001

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