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The Indian telecom manufacturing sector needs great attention, as it has the potential to emerge as a telecom manufacturing hub. India has proven its dominance as a technology solution provider, and knowledge and skill intensive industry. Rising demand for wide range of telecom equipments, particularly in the area of mobile telecommunications, has provided excellent opportunities to domestic and foreign investors in India.

According to industry sources, the Indian telecom equipment demand is expected to reach $30 bn by the end of this year and over $100 bn worth of telecom equipment is needed during the next four years. Further, introduction of 3G in India is also a positive sign because it is creating a lot of excitement and hope among the manufacturers.

However, the industry is still not in a good position and a lot needs to be done to make India an attractive destination for manufacturers and foreign investors. Though the global scenario is such that it is not a good time to put expectations from the thin industry. But this is a right time for India to realize and evaluate the weaknesses and strengths of its telecom equipment manufacturing industry.

Whenever we talk about growth and future of the Indian telecom manufacturing industry, the first question that is raised is 'Can India match China in the telecom equipment manufacturing space'? It is known that China and India are running neck-to-neck where population explosion is concerned. Moreover, the two have been acrimonious neighbors at various points in history too.

However, it is not justified to compare China-which is already well developed and is enjoying preferential government policies, positive FDI flows, and strong infrastructure, and has witnessed a successful history of telecom manufacturing-whereas with the Indian industry that is yet to take off.

China vs India
China has emerged as a global player in telecom equipment manufacturing over the past five years due to its government policy of promoting manufacturing in its domestic industry. Besides, the Chinese government provides subsidies for exports which is yet another reason for its competitiveness.

According to Rajeev Venkat, director, Teracom, "Indian telecom equipments manufacturers had a very tough time over the last five years after the implementation of ITA tariff of zero custom duty on imported telecom equipments. Indian manufacturers had the disadvantage of higher interest costs on capital equipments and working capital, and they had to compete in zero import duty against dumping from Chinese vendors. This has resulted in complete destruction of the Indian telecom equipment manufacturers, and only few companies who had been innovative enough to take on the Chinese low-cost challenges have survived this free onslaught."

China enjoys the openness of its trade and industrial policy, which is one of its best advantages. Besides, the foremost necessity for any country to explore its manufacturing space is the significant flow of foreign investment. And the Chinese Government has led the investment in this space by giving preferential loans to the target industry.

Additionally, China is a preferred location for manufacturers to set up their factories and R&D plants because compared to other countries, the time and cost to set up a business in China is very low.

But the case is entirely different in India. Although China has better access to its markets today, India is also a big market and the same access is available to Indian manufacturers as well. But it is not making a good business case as it remains underutilized.

Rajeen Weimin Yao, senior VP, corporate affairs, Huawei Telecommunications says, "It could be a big mistake to compare Indian telecom manufacturing industry with that of China as China has a very strong history of telecom manufacturing. But India has joined this bandwagon just a few years back. Instead of comparing, India needs to re-evaluate its ecosystem."

Although the cost of manufacturing telecom equipments in India is comparable to China but poor quality of infrastructure, lack of preferred government policies, no protection to domestic industry, and higher interest costs have been discouraging factors .

Talking about the weaknesses of the industry, Sanjay Taneja, director, sales telecom power, Delta Electronics says, "The major drawback with Indian telecom manufacturing industry is frequent power shortages as electricity is one of the major inputs required in this industry. Secondly, poor infrastructure in terms of factory and industrial areas has affected manufacturing and delivery processes. Thirdly, though India has a large pool of manpower, limited trained manpower in manufacturing as compared to China has remained a big problem Finally, and the most important thing is the lack of continuous sustained policy in India."

"In a market which is highly dependent on China, India has to first have build market confidence in its own products, only then can we look at competition," says Vinnie Mehta, executive director, MAIT.

Manufacturers' Demands
The Indian telecom industry is on the verge of great expansion with abundant possibilities. The industry is growing at a fast pace with around 9 mn mobile subscribers added per month, making India the second largest mobile market globally after China.

"The tide seems to be turning in India's favor. However, not many people think so, and attribute India's non-competitiveness in the manufacturing sector to poor infrastructure, high tax levels, high cost of capital, and small-scale industry reservation policy. India needs to concentrate specifically in equipments and semiconductors manufacturing," says Sanjay Taneja of Delta.

Foreign direct investment inflow is one of the major factors for India to improve its manufacturing sector. Significant and continuous flow of investments will help India to develop its infrastructure. But to attract FDI, India needs to liberalize its FDI policy.

Commenting on the FDI scenario in India, Rajeev Yao Weimin of Huawei says, "Definitely, India has a huge potential and it is a hi-tech and knowledge intensive industry. But there is still a long way to go. India should think about the strategy that it should take to accelerate foreign investments and attract manufacturers."

In the past, India had great plans for infrastructure intensive manufacturing. But it has never been marketed well. India must understand its capacity and not oversell its plans. It must learn to be realistic.

According to Mehta, "India must focus on the niche segments to begin with. There is an urgent need to identify the right opportunities. For example, there is a huge demand for set-top boxes, so one should manufacture them. There are big opportunities in the accessories, card chips, PCBs, and peripherals space as well. The industry must recognize its potentials and leverage these opportunities."

Regulatory Ecosystem Required
Telecom equipments manufacturing is a very capital intensive industry and government has to develop an ecosystem in which capital shall be made available to Indian manufacturers at interest rates equivalent to international rates. If the same is not possible then this advantage shall be covered by imposing at least 5% basic duty on all imported finished goods, while the raw material consumed shall continue to enjoy zero duty. The duty differential of 5% between FG & RM will create level playing field in India.

The government should boost exports and encourage domestic production and also R&D. Telecom should also be a part of bilateral trade programs. India also needs to change some of the labor laws to facilitate more production hours.

According to Rahul Sharma, VP, TEMA, "There is an urgent need for providing Rs 500 crore, out of which local telecom equipment manufacturing can extend vendor financing to operators."

A collaborative ecosystem enabled by proactive government policies, demand generation by telecom service providers and handset manufacturers is needed to fuel the growth of telecom manufacturing in India. Greater demand generation and policies to build the component base in India, should enhance cost competitiveness of handsets manufactured, both in domestic market in India as well as exports.

Roadmap for Government
To create a level playing field at the earliest by imposing at least 5% import duty on imported telecom equipments is the need of the hour. The government has to come up with a specific policy regarding telecom components manufacturing and also encourage equipments and semiconductor manufacturers with favorable regulations.

"The Indian government should promote IPR for local manufacturing of telecom equipments," says Rajiv Mehrotra, chairman, Shyam Telecom and president, ELECTEMA.

There should be some change in the excise and customs duty on telecom equipments as well as the recent service tax regime. Improved infrastructure is a highly important issue not only for telecom manufacturers but also for the other industry. Domestic manufacturers should also be encouraged and government should provide incentives to operators to buy from domestic manufacturers.

According to N K Goyal, president, CMAI, "The government has given high priority to manufacturing. They have also formed the National Manufacturing Competitive Policy (NMCP). However, the core issues are yet to be addressed."

The industry experts have suggested a roadmap for the government to give boost to the sector. Some of the recommendations given by them are:

• The government should come up with a concrete manufacturing policy
• It should promote local manufacturing
• There should be some incentives/encouragements for the operators to purchase local equipments
• India should refund excise paid by local manufacturers
• There should be some definite schemes/incentives for local IPR
• Vendor financing at the rate of the interest comparable to other countries should be allowed for Indian manufacturers. Also, they can provide finances to the operators for the equipment purchase
• A provision should be made under USO Fund for the development of local technology with Indian IPR with the provision. That the funds dispersed under USO Fund should be utilized for procurement of equipments which has been designed and manufactured out of assistance given by USO
• There should be provision for purchase and deployment of locally manufactured equipments without insisting for experience for supply
• hile China exports over 60% of their components, and 75% of their semiconductor manufacturing, there is nil production of semiconductors in India. While globally telecom manufacturers need zero inventory for components, the Indian manufacturers need at least two days inventory for domestic manufactured components
• There should be a dedicated fund for telecom R&D
• Telecom should be part of bilateral trade program

Future Plans
Though telecom manufacturing is not flourishing at a desired pace, still the last two years saw many well-known telecom companies setting up their manufacturing bases in India. Ericsson set up a GSM Radio base station manufacturing facility in Jaipur. Nokia and Nokia Siemens Networks have set up their manufacturing plant in Chennai. LG Electronics have set up GSM mobile phone plant in Pune. Ericsson launched their R&D center in Chennai. The government has already set up Telecom Equipment and Service Export Promotion Council, and Telecom Testing and Security Certification Center.

Talking about the companies' future plans, Sunil Dutt, country head, Samsung Telecom Division says, "The Indian telecom industry is coming of age, with big players like us going in for large-scale manufacturing in the country. Our world-class manufacturing facility in India enjoys the highest productivity among all Samsung mobile handset facilities."

"We are geared to catch up the broadband boom by focusing on customer premise equipments and products. The company is positioning itself to offer a complete range of CPEs for broadband based on wireline as well as wireless solutions," says Rajeev Venkat of Teracom.

The ongoing discussion on banning Chinese vendors has had no impact on telecom manufacturing major, ZTE's expansion strategies. India is one of largest markets for ZTE outside China. However, the company has dropped its plan to set up a manufacturing unit in India.

Delta Electronics is very buoyant about the Indian market. The company' products have had successful stints in the Indian market. With a long-term growth objective and several new, innovative products and solutions offerings in the pipeline, they are planning, big investments in India by opening up new offices in the country. Delta is also planning to invest in two more facilities shortly in Rudrapur and Chennai.

Huawei is also very optimistic about the future of manufacturing in India. The company is planning to strengthen and expand its R&D in India. "We are happy with the support of the government because we are getting positive responses from them on various issues related to manufacturing. The government is also ready for foreign investments without any restriction," says Rajeev Yao Weimin of Huawei.

The telecom market in India has undergone sea change in the last few years. The breathtaking speed at which the sector has grown has made the world sit up and take notice of the opportunities and the market potential. With the rapid increase in teledensity India is set to join the league of nations which have created a history in the telecom manufacturing space. But there is a pressing need to become self-sufficient that will meet the domestic needs as well as provide export potential. Instead of competing, India should follow and learn from the experience, development strategies, and success of China.

Arpita Prem
arpitap@cybermedia.co.in