Can India become a telecom manufacturing hub?

 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  of 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 11th Five Year Plan, which envisaged meeting 75% of the domestic demand. 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 equipments,” 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 by 2020? Experts believe that if China can do it in 10 years then why can't India? But the road ahead 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. That was the time when the sector had just opened 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 one 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. They are against putting a cap on the equipment purchase from foreign vendors. They fear that it will kill competition in the market and inflate equipment prices. As per R.S. Mathews, Director, Cellular Operator Association of India, “It is good that the government is promoting equipment manufacturing. 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.”

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 while duty is levied on the import of components, there is no duty on import of finished products. Testing of wireless equipment is another problem. Spectrum is needed to test a wireless equipment, and there is again scarce availability. “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 tests its equipment at 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.