Telecom has been a great success story in our economy. It has revolutionized many aspects of our lives and catalysed economic growth. Telecom infrastructure is a critical asset of any country and deserves strategic focus. The sector is not only the most mission-critical element of our national security and defence, but is also the delivery vehicle for a large number of services such as finance, e-governance, education and healthcare, which can be seamlessly delivered to urban as well as rural masses.
However, a closer examination provides us with another, rather alarming view—that all our telecom growth has only been a services story and we haven’t made any significant progress in developing a domestic telecom products industry. Most leading countries in the world have nurtured their telecom products industry that have not only met internal strategic needs, but also created successful businesses that export several billion dollars worth of equipment around the world. Unfortunately, our domestic growth in telecom has not resulted in creating even a single global telecom product company. Compared with India, China with a proactive policy and government support has been able to create a $50 billion telecom product and ancillary industry that has gained global success.
Photo: Harikrishna Katragadda / Mint
The focus of our telecom policies over the last 15 years has mainly been on delivery of cost-effective telecom services. There has been no support or encouragement in creating a strong domestic product industry, resulting in large-scale import of equipment, rather than manufacturing them locally. Unless we take immediate steps to encourage product development, we will be importing at least Rs5 trillion of telecom equipment in the next five years. More importantly, we will miss a unique opportunity to create another knowledge-based industry and several jobs, which could replicate the success of our information technology services industry.
Telecom is a high-tech infrastructure sector that faces rapid changes in technology and hence requires sustained efforts and favourable policy support to develop world-class capabilities. India has all the key ingredients for building a globally competitive telecom product industry. First, we have strong technical and managerial workforce with a sustainable research and development cost advantage that can help us become innovation leaders globally. Today, no one doubts the capabilities of Indian technologists to design and develop world-class products in all critical areas of telecom technology, including wireless, optical, switches/routers as well as access devices. Second, we have a large and growing domestic market that can provide the volume base for Indian companies to scale up and become globally competitive.
While formulating the government policies for stimulating Indian telecom products, it is important to understand the telecom product value chain. Like any high-tech electronics system, the majority of value addition comes through R&D, intellectual property rights (IPR) creation, marketing, branding and support. The actual manufacturing process of soldering/assembling has very little value addition. In fact, all leading telecom product companies follow the trend of outsourcing their manufacturing/assembly on a job-work basis to specialized electronic manufacturing services companies that have global scale. Fortunately, R&D and IPR creation is a knowledge- and people-driven activity, in which India has a global edge that we must leverage to our advantage.
To stimulate the Indian telecom products industry, the government must take the following policy initiatives at the earliest:
• Use our domestic market to provide “market pull” for Indian companies that develop world-class telecom products. For hardware products (unlike software), a minimum volume base is needed to become cost-competitive, without which it would be impossible for them to compete successfully against global players who are much larger and have a large volume and cost advantage. Once Indian product companies are given access to a certain percentage of the Indian domestic demand, they can reduce their production costs and become globally competitive. In addition, they will build credibility with customers in India, who can be used as references when selling internationally.
• Provide R&D funding to entrepreneurs to create products and IPR. Telecom R&D requires significant upfront investment; hence the government should provide matching R&D funds (to what the entrepreneurs invest) to enable them to innovate aggressively. Such a model has been successfully used in many other countries (for example, the Israel Chief Scientist funding model), and the return on investment for the government for such funding is very high due to the IPR that is created for the country.
• Provide long-term working capital at competitive rates. Without such financing, it is difficult for Indian companies to compete against global vendors, who have access to several billion dollars worth of credit from their governments/banks at very low interest rates.
• Telecom product exports should be a thrust area for bilateral trade. In addition, significant marketing and branding investments need to be made to promote “made in India” telecom products globally.
India has been a great success story in the IT services industry. With telecom, there is a great opportunity for us to create our own R&D-driven products industry. We are now at a decisive moment in our telecom growth, where if the government takes proactive policy steps, we can create a Rs1 trillion telecom products industry.
Sanjay Nayak is CEO and MD of Tejas Networks Ltd. Comment at firstname.lastname@example.org