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Can India become a Telecom Manufacturing Hub?
Depite a Humongous Growth in The Telecom Sector, The Country has failed to build an Ecosystem that Promotes Telecom Manufacturing, Forcing Operators to Import most of The Equipment for their networks.
Issue Date - 09/06/2011
The latest joke doing the rounds in Electronic Niketan (IT and Telecom Minister’s Office) is that the import bill for telecom equipment will soon surpass petrol’s. It’s a telling comment on the Indian telecom industry, which has witnessed exponential growth in the last one decade but failed miserably on the manufacturing front.

Telecom industry in India has come a long way from having 5.07 million subscribers in 1991 to being the world’s second-largest market with a subscriber base 811.59 million by the end of March 2011. Ironically, in the year 2009-10, Indian products were able to meet just 3% of the telecom equipment demand in India. Equipment used for expansion of telecom networks was imported mostly from Europe and China. The figures highlight that the contribution of home-grown manufacturers to the great telecom success story has been negligible. Telecom manufacturing is one of the key areas for the government as well as telecom regulator to seriously look at, as the demand and supply chain will continue to widen. As per a TRAI report the subscriber base is expected to touch 1.5 billion by 2015, considering that India will continue to have 10% of the global market share.

Recently TRAI recommended to Department of Telecommunications (DoT) that manufacturing must be spurred to achieve the target of meeting 80% of the domestic demand. The recommendation was a little ambitious than the target for the XI Five Year Plan, which envisaged meeting 75% of the telecom equipment demand and handsets. If accepted in its present form, a cap on buying equipment manufactured outside the country cannot be ruled out. “The telecom ecosystem has so far failed to adequately spur the manufacturing segment. The demand and supply gap is widening. We need to have a proactive approach towards manufacturing of telecom equipment” says N.K. Goyal, Chairman, Telecom Equipment Manufacturers Association (TEMA).

India’s information and communications technology equipment consumption is expected to touch 11.5% of the global market by 2015 from the current level of 5.5%, as per combined estimates of ISA-Forst & Sullivan, CII and others. A TRAI report says that requirement of equipment for 3G, LTE and WiMAX services alone would be around Rs 232.85 billion by 2015-16. The report predicts that by the year 2020, the combined demand would be worth Rs 264.56 billion. But the question is: Can India become the next telecom manufacturing hub and will it be able to meet 80% of the domestic demand for telecom equipment by 2020? People in the industry believe that if China can do it in a span of 10 years than India can do it as well. But the road ahead for telecom equipment manufacturing appears full of pitfalls.

Telecom equipment manufacturing in India took off just after Independence. In 1948, the first Public Sector Unit (PSU) – ITI– was formed. In the initial stages it met 50% of the domestic demand for telecom equipment. However, in 1993-94, the government withdrew the defrayment of its R&D expenditure. ITI, which had six manufacturing facilities then, was hit hard by the government decision. That was the time when telecom sector had started opening up and demand for telecom equipment had begun to grow considerably. ITI was not able to match the rising demand.

Today, handset is the only telelcom device, which is manufactured in India. Top MNCs, including Nokia, Samsung and LG have manufacturing facilities in the country. Some domestic players, including Mircomax, Karbonn and Lava have plans to start manufacturing in India. But for them manufacturing only make sense when they can sell 1 million units per month or have at least 10% of the total market share, which seems a difficult target for them to meet in the next few years.

On the other hand, telecom service providers in India are not happy with the recommendations of the regulator. Service providers are against putting a cap on the telecom equipment purchase from foreign vendors. They fear that it will kill competition in the market and inflate equipment prices. Telecom service providers’ industry body Cellular Operator Association of India (COAI) has expressed concern over TRAI’s recommendations. “It is good that the government is promoting equipment manufacturing in India. But there should be no binding obligation on telecom operators to buy from them. If the standard of equipment manufactured by local players matches the global standards and prices there is no question of not buying from them” says R.S. Mathews, Director COAI.

Apart from the dearth of local telecom equipment manufacturers, there are other reasons that have held down manufacturing. The law of the land itself supports imports over home manufacturing. Manufacturing needs the support of various electronic components but ironically duty is levied on the import of components as against there being no duty on import of finished products. Testing of wireless equipment is another problem. Spectrum is needed to test a wireless equipment of which there is again scarce availability. “Testing of equipment is one of the biggest challenge that we are facing. We need to test equipment for months before commercial launch. However, Indian authorities allocate testing spectrum for a maximum for 30-day-period, which is not enough. Besides, the entire process of getting spectrum is painful and lengthy,” says a senior official of a telecom equipment manufacturing firm, pleading anonymity. His company test its equipment in a foreign location.

Numerous challenges lie ahead before telecom equipment manufacturing can be pushed from its present abysmal level. The biggest is getting the Department of Telecom’s approval on TRAI’s recommendations in its present form. Also, other than rolling out incentives and tax waivers, the government has to make the entire process of setting up manufacturing units hassle-free. At present one has to take several NOCs to set up an unit, unlike in the East-Asian countries where it is a single window operation and takes a maximum of one week to fifteen days. If the existing roadblocks are not removed then making India a manufacturing hub will forever remain a distant dream.

Akhilesh Shukla           

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