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The European Commission has told the Communications and IT Minister, Mr Kapil Sibal, that the move to give preferential treatment to domestic manufacturers of telecom equipment raised questions about India's commitment to open and fair conditions of doing business.
In a letter to Mr Sibal, European Commission's Vice-President, Ms Neelie Kroes, said that the proposed manufacturing policy sent negative signals to the international business community and warned India of losing out on future innovations.
“The proposals fail to appreciate the way research and development is conducted and intellectual property developed, in today's world of widely distributed knowledge. By imposing local registration of IPR, India risks losing out on future innovation by shutting doors on innovation taking place interdependently across our economies,” Ms Kroes said in the letter.
Second letter
This is the second letter from the European Union on the issue. In September, the Ambassadors of Italy, Finland, Denmark, France, Germany and Sweden had raised concerns against the proposed telecom manufacturing policy on grounds that it may flout WTO norms.
The Ministry of Communication and IT had floated a proposal to reserve 30 per cent of all electronic equipment procurement to items manufactured in India. This includes telecom gear and IT peripherals. When the policy is announced, telecom companies, both private and public sector, will have to buy 30 per cent of their hardware from those that have manufacturing base in the country or face penalty. This goes up to 80 per cent by 2020. The policy also gives fiscal benefits to local products in terms lower taxes.
If implemented, it will have major impact on European manufacturers, including Nokia Siemens, Ericsson and Alcatel-Lucent.
“We strongly believe that implementation of these proposals will not only have the potential to harm the EU and its ICT industry, but it will not be in India's own interest. Indian consumers and SMEs will pay higher prices than needed if domestically manufactured telecom products are given preferential market access,” the latest letter from EC said.
The US Government had also raised similar concerns over this issue earlier as the proposed policy will also impact American manufacturers such as Cisco, HP, Motorola and Dell.
Local manufacturers
On the other hand, local manufacturers are pushing for more concessions in the proposed policy. According to the Telecom Equipment Manufacturing Association of India, the Government should be concerned about the huge import bill arising out of importing telecom gear.
They have also presented a case for creating an R&D fund that will be used to creating Indian IPR. Indian products account for just two per cent of the overall demand in the market estimated to be worth Rs 54,700 crore.
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