Making the right calls

The Telecom Regulatory Authority of India’s consultation paper on promoting local telecom equipment manufacturing is a good opportunity to take corrective action. Successive governments have tried to make India a global hub for manufacturing telecommunications equipment but failed. . India’s telecom import bill has increased at a rate of 16.3 per cent annually with as much as 90 per cent of network gear requirements being shipped into the country from China, US and Europe. This dismal scenario is largely due to the gap between intent and execution. For example, most of the recommendations made by TRAI in 2011 to boost local manufacturing are yet to be implemented. This includes a proposal to lower the licence fee of telecom operators whobuy locally made equipment. The regulator had also suggested a 10-year tax holiday on the lines of that given to the software industry, for domestic producers of telecom products with turnover under ₹1,000 crore. Six years hence no action has been taken by the Centre on any of these proposals.

Even in the case of manufacture of mobile phones where there has been some success in terms of increase in the number of new factories being set up, almost all these units are assembling plants with no meaningful value addition. As a result over 90 per cent of the revenue generated from selling locally assembled phones goes back to China from where components are sourced. The demand for telecom equipment in India was valued at ₹54,765 crore in 2009-10, which was about 5.5 per cent of the global demand. This is projected to grow to ₹1,70,000 crore by 2020 as mobile operators roll out new networks for 4G and 5G services. If the current reliance on foreign-made products continues then the electronic import bill could surpass India’s oil import bill. The telecom regulator has correctly summarised in its latest paper that the industry is caught in a vicious circle of zero duty imports, high domestic production costs and manufacturing ecosystem challenges. Manufacturing locally has many benefits other than lowering the country’s import bill, like employment and income generation opportunities. It will also help strengthen cyber security as locally made products can be monitored for malware and bugs.

The only way to promote local manufacturing is to provide fiscal incentives and an assured business model through stronger laws for preferential market access, including for purchases made by private sector players. India may have already missed the bus on older technologies but could become the leader in newer ones like 5G. This requires policy makers to be decisive, innovative and fast in implementation of schemes. The TRAI consultation paper floated by the telecom regulator can be a fresh start to realising the vision of making India self-sufficient in telecom equipment.

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