India Telecom

April 18, 2003
Anti-manufacturing mindset threatens industry

Rajendra Prabhu

NEW DELHI -- Following the 2003-04 budget, that has taken no major step to promote telecom equipment manufacturing within the country, the industry has begun to wonder whether there is a strong lobby within the government that wants Indian manufacture to close down, and let imports take care of the operators' needs.

This is not a matter of conjecture only. Telecom Equipment Manufacturers Association (TEMA) sources said that when their delegation called on a top official in the pre-budget discussions, he stunned them with the rhetorical question whether there was any need for domestic manufacture at all while imports were cheaper.

The duty structure emerging out of the budget confirmed a suspicion that the import lobby is strongly entrenched within the bureaucratic echelons. Asked about the government's presumption that domestic manufacture is expensive, TEMA president N.K. Goyal said, "It is only because the imported equipment have a 5 percent duty, while the locally manufactured ones have to suffer a 37 percent burden due to taxes." In addition, there are higher charges for finances, while abroad they get credit on interest rates just a fourth of what prevails within the country.

While retaining the import duty on the 271 essential components at 25 percent, the current budget has reduced the customs duty on non-essential components. The government reduced the duty on the wrong components as proof of its favorable response to domestic manufacturers' demands! No wonder, the domestic manufacturers suspect that the import lobby within it is misleading the government.

China has emerged as a strong manufacturing base in telecom equipment; and so has Korea. For example, China-based Huawei Technologies has a sales turnover of $3 billion -- similar to what the entire domestic telecom equipment industry in India makes (Rs. 15,000 crores or $3 billion of equipment)! Besides a large domestic market, the Chinese manufacturing strength is also based on the compulsion to manufacture the equipment locally through joint ventures or otherwise. Also, a powerful R&D endures the industry. In Korea, the government promoted local companies like Samsung and LG to develop into strong domestic suppliers and then become global players in CDMA and GSM equipment.

Industry fears free run of import lobby
Goyal, TEMA secretary-general Balaji, vice president Sanjay Agarwal and other office bearers fear that if the import lobby continues to have its free run like this, there could be a serious threat to security concerns. India will lose its strategic manufacturing strength in electronic and communication equipment that are vital for our defense forces, railways, oil and gas industry, etc. "We are not asking for protection. We are only asking the government not to keep the scales weighed against us," Goyal and other TEMA members asserted.

The TEMA panel further recalled that soon after local manufacturing in the private sector was allowed, the prices of telephone instruments, telephone lines, power packs and radios came down drastically. This was recalled in support of the claim that they can supply equipment far cheaper if allowed to manufacture within the country on same terms as foreign suppliers do within their countries. "We are today in a position to build entire telephone networks from telephone exchanges to power packs to transmission lines, STM-1 to STM-16 equipment and other sophisticated equipment. We can make CDMA equipment and build GSM or CDMA handsets," Goyal added.

There is also no national effort to create an R&D base to scout for next-generation networks and terminals. The NTP-99, adopted as the loadstar for the future, had specified the promotion of domestic equipment manufacture and adequate investment in R&D. What is happening now is the reverse!

Anil Khosla, former president of TEMA, recalled the experience of a local manufacturing unit set up by a global company of which he is the CEO. He said: " We can produce upto one million lines a year but are surviving on orders even a fourth or fifth of that annually. The procurement system of the public sector telecom operators is such that sometimes orders are aggregated and during some years, there is little order. This upsets our cost estimates with large labour and equipment kept idle. To strengthen the domestic manufacturing base, there should be a national program of long term orders. In that case, we can compete in export markets on the base of our domestic supplies."

TEMA pointed out that many competitors abroad have legacy equipment inventory and are trying to sell them here at throwaway prices at the cost of local manufacturers. Even the special economic zones, promoted to bolster exports from India, have not proved a boon to local manufacture. Several units are just not making any value addition; some others exist only to collect duty drawbacks without actually exporting locally manufactured items.

TEMA's long standing demand to the government to constitute a financing body to treat domestic supply of project equipment as deemed export and to provide level-playing field for local manufacturers alongside importers of project equipment, is falling on deaf ears. At this rate, telecom equipment manufacture will shift from India to China or other places.