Paper chase

The Telecom Regulatory Authority of India’s recommendations to promote local telecom equipment manufacturing is high on intent but lacking in new ideas or initiatives. The proposals made by the regulator are at best administrative in nature, which will not move the needle in terms of reducing India’s reliance on large-scale imports. The situation is already alarming as overall import of telecom equipment has increased from $14.7 billion in 2014-15 to $21.8 billion in 2017-18. With the Indian data market growing at an exponential rate, the demand for network equipment will only increase. If concrete measures are not taken to encourage local manufacturing this could lead to worsening trade deficit for the country.

To be fair, there is not much that the TRAI can do on this issue because most of the decisions required to encourage local manufacturing fall under the purview of the Ministries of Commerce and Finance. While better laws for protecting intellectual property rights, creating a single window clearance for procedural issues and setting up an institutional mechanism, as proposed by TRAI, will support local manufacturing, the actual bottleneck is the lack of adequate infrastructure and fiscal incentives that can make domestic production viable. There is an inherent disadvantage of approximately 15 per cent to the Indian manufacturer compared to countries like China due to various factors including poor connectivity, higher cost of power and other infrastructural gaps. Unless these issues are resolved, India will continue to be an importer nation. Successive governments have been trying to address the challenge of making India a global hub for manufacturing telecommunications equipment but have failed. That is because a number of these initiatives either remain on paper or have been forgotten. For example, most of the recommendations made by TRAI in 2011 to boost local manufacturing are yet to be implemented. This included a proposal to lower the licence fee of telecom operators that buy locally-made equipment. The regulator had also suggested then that an income tax holiday may be given for 10 years, on the lines extended to the software industry.

The telecom regulator has correctly summarised in its consultation paper that the industry is caught in a vicious cycle of zero duty imports, high domestic production costs and manufacturing ecosystem challenges. This government should therefore look at this issue on a mission mode with a clear understanding of the country’s priorities. Decisions such as giving a tax break may impact the exchequer’s revenues in the short term but could bring in rich dividends in the long term. Other than lowering the country’s import bill, local manufacturing will help provide employment and income generation opportunities. If India has to achieve the objective of ‘net zero imports of telecommunication equipment’ by 2022, the entire policy-making apparatus must come together to create an ecosystem that would act as a breeding ground for developing technologies and making products of the future.

COMMENT NOW