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17 Jan

Boost to Make In India: Growth in telecom services lies in virtually nondescript to domestic manufacturing industry

By: Sanjeev Kakkar
Jan 17, 2018

Boost to Make In India Growth in Telecom Services

As the second largest market for telecom services, India has recorded an envious annualized growth of about 20 per cent in the last decade and has thus far outstripped the overall economic growth in this period. However, for a nation that is showcasing Digital India to Make in India to the world, the soft underbelly lies in the virtually nondescript domestic telecom equipment Industry. Year after year, India is meeting over 90 per cent of its robust demand for telecom equipment (accounting for about 8 per cent of global demand) through imports.

A reality check is provided by none other than the Consultation Paper released by telecom regulator TRAI on Promoting Local Telecom Equipment manufacturing. “While a liberal trade policy enabling import of telecom equipment with low or no duty has kept both service providers and consumers happy, the lack of capacity building for domestic production poses a serious challenge to India’s continued success in the telecom sector. Apart from economic reasons, the security concerns arising out of excessive reliance on foreign manufactured products also suggest that India should aim at achieving self-sufficiency in telecom equipment manufacturing,” the paper says.

It is indeed ironical that the telecom sector is poised to record Rs 6.6 trillion revenue by 2020 on the back of imported equipment worth over Rs 150,000 crore in that particular year alone even as the contribution from domestic manufacturers will remain static at under 10 per cent.

While the country has seen increase in the manufacturing of mobile handsets in last few years with low VA content, there is not much support to push the design based manufacturing of infrastructure equipment. High dependence on import of IT and Telecom products also poses serious challenge to trade deficit. Ambitious target of the government to meet net zero imports by 2020 cannot be achieved unless we focus aggressively on design oriented, high value addition based manufacturing in the country.

Give the dog bad name and kill it. The saying in fact sums up the status of domestic equipment manufacturers in this segment.

It is often said that the domestic telecom equipment manufacturing cannot succeed because of lack of component ecosystem, absence of technical expertise, poor infrastructure, and the capability to satiate this humungous demand. However, contrary to this perception, there is no dearth of technical competence and innovative capabilities in the country. The fact is that Indian telecom equipment industry is caught in a vicious circle of zero duty imports since the signing of Information Technology Agreement in 1997 that has given the equipment market to multinationals on a platter. Hence, it makes little sense at the domestic level to take the arduous route of product design and intensive R&D.

The present Defense Procurement Policy (DPP 2016)considers self reliance in defense manufacturing as both vital and strategic and places emphasis on leveraging domestic capabilities. The telecom infrastructure is no different and it is as sensitive to national security as defense. Hence, it is imperative to consider self-reliance and focus on design based manufacturing with right policy mix for telecom equipment as well. Development of products and their successful commercialisation will only encourage emergence of component eco system. The government must also consider funding of major telecom infrastructure/technology development, which have long gestation period, need high investments and fit into various telecom network roll out needs like mobile technologies.

For the successful commercialization of the domestic products, market access is most critical. Domestic makers cannot attain scale and size of global majors like Ericsson, Nokia, ZTE and Huawei till they start receiving strong support from the government in this regard and also get financial support by way of dedicated funding, tax breaks on R&D, etc. It is unflinching state support along with non-tariff barriers that has helped China created companies like Huawei to compete fiercely on the global platform.

On its part, the government has a Preferential Market Access Policy that was rolled out way back in 2012 to provide preference to domestically manufactured telecom products in the public procurements. However, the policy is hardly followed by government entities, and central government funded projects where large procurement happens. There have been instances where the procurement agencies includesome restrictive clauses in the specifications of the product or the qualifying criteria, which limits participation of domestic suppliers in tenders.

It is thus for the government to decide whether it wants to develop equipment manufacturing capabilities in the country, which is the only way to enhance our competitiveness, or be at the mercy of foreign vendors.

Prime Minister Narendra Modi’s government has taken some very hard decisions to strengthen the economy. To revive the sector, a similar strong resolve is required with sustained support to build home grown telecom equipment and provide them assured market access. Domestic success stories could buoy the domestic telecom sector and help it stand in tune with STAND UP INDIA.

This article was originally featured in The Financial Express. Read here

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