Cisco tests ‘Make in India’ waters with $5-b proposal

US technology major Cisco has submitted a proposal to the government saying it is ready to invest $5 billion over the next 5 years to kick-start a manufacturing ecosystem in India.

The money will be used to set up a production facility with contract manufacturing partners. Cisco has indicated that it could look at producing set-top boxes, IP phones, routers, and switching equipment.

The facility could create 1,000 direct jobs and 10,000 indirect ones, according to the proposal submitted by the company. The networking major has, however, sought a favourable policy in return for its investment.

For example, the company has asked for a waiver of tax on royalty payments. When a global technology vendor transfers technology to a domestic entity, currently there is an incidence of 5 per cent R&D cess on royalty, 12.3 per cent service tax on royalty and 10 per cent royalty withholding tax.

“India manufacturing is not cost competitive to global manufacturing benchmarks. There is an 8 per cent landing cost disadvantage of serving India from India compared to import. In addition, there are costs of switching manufacturing from existing locations to India,” said an industry executive.

Cisco has also sought full market access to government and Defence deals for products the company makes in India.

Cisco has submitted this proposal in response to the Information Technology Ministry’s ‘Make in India’ programme. A number of other companies, including IBM and HP, have also shown interest in setting up manufacturing facilities in India.

However, the existing policies are not conducive for manufacturing. For example, Nokia had set up its biggest plant in Chennai and it is now shut due to a tax dispute.

To make ‘the Make in India’ slogan a success, the Ministry of Information Technology has proposed changes in the two-year-old special incentive package scheme.

The revisions include lowering the eligibility threshold and extending the benefit to new product categories such as air conditioners and refrigerators. The changes have been proposed with the objective of widening the scope of the scheme and removing procedural bottlenecks.

The industry had earlier told the Government that more needs to be done to achieve the target of zero net imports of electronic goods.

Until now 40 applications involving investments of nearly ₹14,600 crore have been received under the scheme. Of these, 16 projects worth ₹2,230 crore have been approved.

However, the domestic demand of electronic goods is projected to grow to $400 billion by 2020, of which domestic production can cater to only $100 billion.

To bridge this gap, the IT Ministry has floated a Cabinet note proposing broad changes to the 2012 policy.

The minimum investment required to be eligible for the incentive has been brought down to help smaller players take advantage of it.