India Telecom

Bright future for Indian Telecom Sector

“Government must consider setting up a Telecom Finance Corporation, for lending funds at reasonable rates for short, medium and long term requirements both to the telecom operators as well as equipment suppliers,” says Arun Khanna, President, Telecom Equipment Manufacturers Association (TEMA), in an interview with Convergence Plus. Excerpts:

Why Telecom Financing Corporation is required?

CAPITAL INTENSIVE PROJECTS

Almost all telecom projects are capital intensive and have a medium or long-term gestation period, resulting in critical projects not being implemented.

COMMERCIAL VIABILITY

As the prices charged by the service providers are not market controlled but are Government controlled, and cannot be increased beyond certain limits set, prospective financiers consider the investments in these ventures as non-credit worthy.

PLETHORA OF RULES

Too many approvals and a plethora of rules some times requiring as many as 100 clearances, delay project implementation.

TEMA CAMPAIGNS FOR THIS CORPORATION

Every year TEMA, in its pre-budget recommendations to the Government has recommended setting up of a Telecom Finance Corporation to finance the telecom manufacturing and services sectors. TEMA has also recommended setting up of a Telecom Finance Corporation to the Planning Commission’s Working Group on the telecom sector for the 10th Five-Year Plan, and to the Telecom Development Council.

MNCs BENEFIT

Today, almost all the private telecom operators purchase equipment from multinational companies, who provide vendor financing on a long-term basis. Private telecom operators do not purchase the same equipment from a local manufacturer for want of vendor financing. This results in the domestic manufacturing sector having to suffer, as the manufacturing companies are not in a position to provide easy repayment financial packages to the operators.

Even BSNL seeks equipment against deferred payments. The Indian telecom-manufacturing sector is in no position to provide vendor financing specially with such a keenly fought tendering system. Occasionally, in a very few cases (like liquidation of inventory), it may be possible for Indian manufacturers to accept deferred payment terms, but this is not the general practice.

The Indian telecom sector is expected to continue to grow at over 20 percent per year during the next five to seven years. Hence, it is ironical that although the demand exist for telecom equipment, the domestic manufacturing sector may not grow at a proportionate rate, as the major portion of equipment supplies will go to the MNCs, who are in a position to offer vendor financing.

For strategic reasons alone, the domestic telecom manufacturing industry must grow to provide defence and strategic related equipments. The Indian manufacturing sector is keen to provide equipment for rural communications also.

TEMA’S DEMAND IS IN LINE WITH GOVERNMENT SET UP ELSEWHERE

Several sectoral finance corporations under the Government of India are helping viable projects in specific sectors. For example:

• Industrial Development Bank of India
• Industrial Finance Corporation
• NABARD (Agriculture)
• Power Finance Corporation (Power Generation & Distribution)
• Railway Finance Corporation (Railways)
• Small Industries Development Bank of India (Small scale sector)
• Technology Development Board (DST financing technology projects)

TEMA, therefore, recommends the formation of the Telecom Finance Corporation.

TEMA further recommends that a committee of experts be formed to identify the sources of funding, including Government funding, multi-lateral and bi-lateral assistance, institutional financing, market borrowings, internal resources and private investment. The Government can contribute the seed money while other banks and financial institutions contribute to the corpus.