Photo: Mint (Mint)
Photo: Mint
(Mint)

India to deploy `17,500 crore to boost local telecom products

India to set up three funds to boost local research and manufacturing, cut dependence on imports

New Delhi: India has proposed to set up three funds with a combined corpus of 17,500 crore to boost local research and manufacturing of telecom products as it seeks to cut dependence on imports at a time when the current-account deficit has widened to a record and also to reduce security concerns posed by such imports, particularly from China.

The government will initially allot 5,000 crore to the Telecom Research and Development Fund, 2,500 crore to the Telecom Entrepreneurship Promotion Fund and 10,000 crore to the Telecom Manufacturing Promotion Fund during the 12th Five-year Plan ending March 2017, according to an internal document of the department of telecommunications (DoT) that has been reviewed by Mint.

Widening trade and current-account deficits and security concerns about cheap equipment imports from countries such as China have prompted the government to look for local alternatives. Indian companies that import telecom network equipment from China’s Huawei Technologies Co. Ltd and ZTE Corp. require security clearances from the government.

The government is also looking at ways to narrow the nation’s trade deficits. The current-account deficit, the broadest measure of trade, surged to 6.7% of the gross domestic product in the December quarter, making it vulnerable to external economic shocks.

Asia’s third-biggest economy imported 39,820.60 crore worth of telecom gear in the nine months ended 31 December, Milind Deora, minister of state for communications, said in a written reply to a question in Parliament in March. That compares with 52,441.23 crore worth of equipment imports in the previous fiscal year.

While the three funds will have their own separate governing councils, they will also have an overall Telecom Product Fund Governing Council that will review the operations and disbursement of money regularly. The council will be chaired by the DoT secretary and will have two members from DoT, members from banking and finance industry, representatives from telecom products companies, academicians with telecom technology background, members of business schools as well as telecom operators. The funds will be given in mix of grants and soft loans.

“A lot depends on how well it is spent or disbursal procedures followed. There is no shortage of well-intentioned plans that the government has had but as can be seen with the USO (universal service obligation) fund, meant to fund rural telephony, that is lying largely unused, intentions are not enough," said Neeraj Jain, a senior director at consultancy Deloitte in India. “We are latecomers in the manufacturing game and if the government had acted a long time ago, we would have thrived much like China currently."

The government has also provided operational guidelines for the funds, which include processing of all applications within a three-month-period, and disbursal of money within a month after the project gets approval.

The policy of encouraging indigenous manufacturing and research is part of the 12th plan. The National Telecom Policy 2012, a framework document based on which the telecom policy is expected to be decided for the coming decade, also includes the plan to create a corpus to promote indigenous research and development, intellectual property rights, entrepreneurship, manufacturing, commercialization and development of products and services.

A similar move to encourage indigenous telecom products was first announced in February, when the government came out with a policy of domestic sourcing of electronic products wherever possible.

In a recent internal note, the National Security Council said the demand for telecom equipment in India constituted 6.2% of the global demand of 16.4 trillion in 2012-13 and a failure to improve indigenous manufacturing would lead to a $150 billion import bill in the next 10 years. China exported more than $7 billion worth of telecom equipment and $2 billion in computers to India in 2011, according to UN data.

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