The government’s decision to hike import duty on certain communication items, including base stations, to up to 20 per cent as part of the efforts to control the widening current account deficit, is expected to add to the financially stressed telecom sector, which sees its import costs rising by nearly 10 per cent. Currently, the telecom industry’s import bill for network equipment is estimated to be around $2-3 billion over the last six months, given that a number of operators are in midst of network rollouts. Annually, telecom operators import around $8 billion worth of network equipment.
“Operators will always comply with government orders especially as they relate to national security and interests. However, the increased duties will lead to delays in network rollouts, network enhancements and upgrades, especially impacting broadband and 5G trials. We expect these to be temporary and rolled back, else the financial stress on an already stressed industry will be exacerbated,” said Rajan S Mathews, director general, Cellular Operators Association of India (COAI), a body representing country’s top mobile companies including Bharti Airtel, Reliance Jio and Vodafone Idea.
Mainly, network equipment is imported by telecom operators from companies such China’s ZTE and Huawei and European firms Nokia and Ericsson. While the duty on import of base stations has been increased to 20 per cent from 10 per cent, that on certain other inputs used in the communication industry like Printer Circuit Board Assembly (PCBA) has also been increased. Import duty on populated, loaded or stuffed printed circuit boards of all goods other than mobile phones, has been raised to 10 per cent. Duty has also been raised to 20 per cent from 10 per cent for base stations and for machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus other than modems, voice frequency telegraphy, digital loop carrier systems and multiplexers.
Together, the duties were raised for items in eight categories, effective Friday. The finance ministry’s decision on Thursday had come after a sharp fall in stock, bonds and rupee markets, and the move was part of the broader scheme to restrict the widening current account deficit, under which it had earlier hiked customs duty on 19 items including air-conditioners and refrigerators, from 10 per cent to 20 per cent. In April-June 2018, the current account gap widened to $15.8 billion — 2.4 per cent of GDP — compared with $15 billion during the same period last year.
For over the last two years, the telecom industry has witnessed significant stress with debt levels of the companies rising to nearly Rs 5 lakh crore. Intense competition in the sector has led to some companies shutting shop, while others selling out their businesses to bigger competitors.
The biggest consolidation concluded only recently with the second and third largest operators Vodafone India and Idea Cellular, respectively, merging to create the country’s largest telecom company. Despite a move that is expected to hurt the telecom sectors, stocks of two of the largest companies closed higher on Friday, in line with the broader market. While shares of Bharti Airtel ended trading 1.6 per cent higher, those of Vodafone Idea closed 4 per cent up on the National Stock Exchange. NSE’s benchmark index Nifty 50 ended up 2.32 per cent Friday.