Business Standard

Over 90% of telecom gear in India's Rs 50,000-cr market is imported

The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets

Surajeet Das Gupta  |  New Delhi 

Indian will constitute 6.6 per cent of the global demand for telecommunication equipment in 2014-15, according to research agency Ovum. The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets. The bulk of this money will, however, be spent on buying imported equipment, mainly from Europe and China.

According to the Systems Design and Manufacturing Association (TSDMA), Indian firms that design and manufacture and also have intellectual property, had a three per cent share of the nearly-Rs 50,000-crore equipment market in 2012-13. Adding foreign that have factories in India raises the share to 10-12 per cent.



But the value added in India is less than 11 per cent. The work here is limited to system integration and packaging. The design and the intellectual property, which constitutes a large part of the value addition in gear, resides abroad.

The Equipment Manufacturers' Association paints an even more grim picture. Its chairman says the Indian market for core network equipment, excluding towers and batteries, is worth around Rs 25,000 crore but local firms do not contribute more than Rs 1,000 crore.

Attempts to coax foreign equipment manufacturers to set up facilities in India were made a few years ago through clauses in Bharat Sanchar Nigam Ltd's (BSNL's) orders that required domestic production. Of late, these clauses are not insisted upon.

In February 2012, the government announced a preference policy in which 30 per cent of the orders of government departments would be reserved for local gear makers, which would have to undertake a minimum value addition of 25 per cent. The policy extended the quota to the private sector, too, asking it to source sensitive equipment from local manufacturers.

But the government had not factored in lobbying by groups like the US-Indian Business Council against what they described was a violation of India's commitments to the World Trade Organization. Succumbing to pressure, the Cabinet cleared a watered-down policy. service providers, which account for the bulk of the market, do not need to buy sensitive gear from local vendors. equipment manufacturers from Israel, South Korea and Taiwan decided to drop plans for joint ventures in India after the government flip-flop.

Also, government orders requiring local sourcing did not materialise. Indian manufacturers complain tenders by the government and state-owned telecommunication spell out restrictive clauses, such as earlier experience in delivery of similar equipment or networth rules, that keep them from bidding.

"Many government tenders impose restrictive clauses. For example, they insist on a track record. But if we have developed a new technology, how can we show a track record, unless we are given a chance," asks Sanjeev Kakkar, advisor to

has put out an order for routers to cater to the Rs 15,000-crore national network for spectrum project with the condition that the manufacturer should have deployed a substantial number of similar products (like routers) in the country. No Indian manufacturer can meet this condition.

In contrast, when the South Korean government decided to adopt the technology, it followed it up with a policy to back local manufacturers. Seoul identified five South Korean and gave them an initial order of one million handsets each.

The rest is history.

It is also more costly to make gear in India because of the scale of the global manufacturers. "Indian manufacturers face a (cost) disadvantage of between 20 per cent and 27 per cent against foreign that import," says Goyal of the Equipment Manufacturers' Association. Finished equipment can be imported at zero duty, but components bear a duty ranging from 10 per cent to 15 per cent. Indian gear makers pay 16-18 per cent interest on loans, far above their Chinese rivals. Infrastructure costs like power are higher here as well.

While most global gear declined to comment on their imports, a source in said only a fourth of its $800 million worth of equipment sold in India was made locally. He added importing from China was 30 per cent cheaper.

The equipment business is controlled by five - Huawei, ZTE, Ericsson, Nokia Siemens, and Alcatel - which have financial muscle to heft in big deals. With managed services, where equipment build and maintain networks for service providers, it has become a high-roller's game.

These get support from their governments. Chinese banks have billions of dollars in credit lines for buying Chinese equipment. The banks offer credit at two per cent interest, payable in 15-20 years and the interest becomes due only from the fifth year. "Which Indian manufacturer can compete against that? We are looking for the best deal. Why should we bother whether the gear is homemade or foreign? We pass the benefit to the consumer in low tariffs," says a senior executive at a services company that buys most of its equipment abroad.

It is a fair call for services fighting a bitter battle for subscribers. Unless, of course, the government steps in to boost local production. That would mean changing the inverted duty structure, charging lower licence fees if buy Indian, providing funds for research, and raising import duty on products made in India. Some say India should learn from China, which asked foreign to transfer intellectual property if they wanted to sell equipment.

Some tentative steps have been taken. State-owned Railtel and Power Grid Corporation have local sourcing in their contracts. And Indian have outbid international competitors for contracts by the new special-purpose vehicle set up by the government to implement the national fibre-optic network. The government intends that by 2019-20, only 20 per cent of equipment in the country should be imported. At the moment, that seems like a pipe dream.

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Over 90% of telecom gear in India's Rs 50,000-cr market is imported

The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets

The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets Indian will constitute 6.6 per cent of the global demand for telecommunication equipment in 2014-15, according to research agency Ovum. The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets. The bulk of this money will, however, be spent on buying imported equipment, mainly from Europe and China.

According to the Systems Design and Manufacturing Association (TSDMA), Indian firms that design and manufacture and also have intellectual property, had a three per cent share of the nearly-Rs 50,000-crore equipment market in 2012-13. Adding foreign that have factories in India raises the share to 10-12 per cent.

But the value added in India is less than 11 per cent. The work here is limited to system integration and packaging. The design and the intellectual property, which constitutes a large part of the value addition in gear, resides abroad.

The Equipment Manufacturers' Association paints an even more grim picture. Its chairman says the Indian market for core network equipment, excluding towers and batteries, is worth around Rs 25,000 crore but local firms do not contribute more than Rs 1,000 crore.

Attempts to coax foreign equipment manufacturers to set up facilities in India were made a few years ago through clauses in Bharat Sanchar Nigam Ltd's (BSNL's) orders that required domestic production. Of late, these clauses are not insisted upon.

In February 2012, the government announced a preference policy in which 30 per cent of the orders of government departments would be reserved for local gear makers, which would have to undertake a minimum value addition of 25 per cent. The policy extended the quota to the private sector, too, asking it to source sensitive equipment from local manufacturers.

But the government had not factored in lobbying by groups like the US-Indian Business Council against what they described was a violation of India's commitments to the World Trade Organization. Succumbing to pressure, the Cabinet cleared a watered-down policy. service providers, which account for the bulk of the market, do not need to buy sensitive gear from local vendors. equipment manufacturers from Israel, South Korea and Taiwan decided to drop plans for joint ventures in India after the government flip-flop.

Also, government orders requiring local sourcing did not materialise. Indian manufacturers complain tenders by the government and state-owned telecommunication spell out restrictive clauses, such as earlier experience in delivery of similar equipment or networth rules, that keep them from bidding.

"Many government tenders impose restrictive clauses. For example, they insist on a track record. But if we have developed a new technology, how can we show a track record, unless we are given a chance," asks Sanjeev Kakkar, advisor to

has put out an order for routers to cater to the Rs 15,000-crore national network for spectrum project with the condition that the manufacturer should have deployed a substantial number of similar products (like routers) in the country. No Indian manufacturer can meet this condition.

In contrast, when the South Korean government decided to adopt the technology, it followed it up with a policy to back local manufacturers. Seoul identified five South Korean and gave them an initial order of one million handsets each.

The rest is history.

It is also more costly to make gear in India because of the scale of the global manufacturers. "Indian manufacturers face a (cost) disadvantage of between 20 per cent and 27 per cent against foreign that import," says Goyal of the Equipment Manufacturers' Association. Finished equipment can be imported at zero duty, but components bear a duty ranging from 10 per cent to 15 per cent. Indian gear makers pay 16-18 per cent interest on loans, far above their Chinese rivals. Infrastructure costs like power are higher here as well.

While most global gear declined to comment on their imports, a source in said only a fourth of its $800 million worth of equipment sold in India was made locally. He added importing from China was 30 per cent cheaper.

The equipment business is controlled by five - Huawei, ZTE, Ericsson, Nokia Siemens, and Alcatel - which have financial muscle to heft in big deals. With managed services, where equipment build and maintain networks for service providers, it has become a high-roller's game.

These get support from their governments. Chinese banks have billions of dollars in credit lines for buying Chinese equipment. The banks offer credit at two per cent interest, payable in 15-20 years and the interest becomes due only from the fifth year. "Which Indian manufacturer can compete against that? We are looking for the best deal. Why should we bother whether the gear is homemade or foreign? We pass the benefit to the consumer in low tariffs," says a senior executive at a services company that buys most of its equipment abroad.

It is a fair call for services fighting a bitter battle for subscribers. Unless, of course, the government steps in to boost local production. That would mean changing the inverted duty structure, charging lower licence fees if buy Indian, providing funds for research, and raising import duty on products made in India. Some say India should learn from China, which asked foreign to transfer intellectual property if they wanted to sell equipment.

Some tentative steps have been taken. State-owned Railtel and Power Grid Corporation have local sourcing in their contracts. And Indian have outbid international competitors for contracts by the new special-purpose vehicle set up by the government to implement the national fibre-optic network. The government intends that by 2019-20, only 20 per cent of equipment in the country should be imported. At the moment, that seems like a pipe dream.
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Business Standard
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Over 90% of telecom gear in India's Rs 50,000-cr market is imported

The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets

Indian will constitute 6.6 per cent of the global demand for telecommunication equipment in 2014-15, according to research agency Ovum. The industry expects it will spend Rs 46,000 crore on buying gear, excluding handsets. The bulk of this money will, however, be spent on buying imported equipment, mainly from Europe and China.

According to the Systems Design and Manufacturing Association (TSDMA), Indian firms that design and manufacture and also have intellectual property, had a three per cent share of the nearly-Rs 50,000-crore equipment market in 2012-13. Adding foreign that have factories in India raises the share to 10-12 per cent.

But the value added in India is less than 11 per cent. The work here is limited to system integration and packaging. The design and the intellectual property, which constitutes a large part of the value addition in gear, resides abroad.

The Equipment Manufacturers' Association paints an even more grim picture. Its chairman says the Indian market for core network equipment, excluding towers and batteries, is worth around Rs 25,000 crore but local firms do not contribute more than Rs 1,000 crore.

Attempts to coax foreign equipment manufacturers to set up facilities in India were made a few years ago through clauses in Bharat Sanchar Nigam Ltd's (BSNL's) orders that required domestic production. Of late, these clauses are not insisted upon.

In February 2012, the government announced a preference policy in which 30 per cent of the orders of government departments would be reserved for local gear makers, which would have to undertake a minimum value addition of 25 per cent. The policy extended the quota to the private sector, too, asking it to source sensitive equipment from local manufacturers.

But the government had not factored in lobbying by groups like the US-Indian Business Council against what they described was a violation of India's commitments to the World Trade Organization. Succumbing to pressure, the Cabinet cleared a watered-down policy. service providers, which account for the bulk of the market, do not need to buy sensitive gear from local vendors. equipment manufacturers from Israel, South Korea and Taiwan decided to drop plans for joint ventures in India after the government flip-flop.

Also, government orders requiring local sourcing did not materialise. Indian manufacturers complain tenders by the government and state-owned telecommunication spell out restrictive clauses, such as earlier experience in delivery of similar equipment or networth rules, that keep them from bidding.

"Many government tenders impose restrictive clauses. For example, they insist on a track record. But if we have developed a new technology, how can we show a track record, unless we are given a chance," asks Sanjeev Kakkar, advisor to

has put out an order for routers to cater to the Rs 15,000-crore national network for spectrum project with the condition that the manufacturer should have deployed a substantial number of similar products (like routers) in the country. No Indian manufacturer can meet this condition.

In contrast, when the South Korean government decided to adopt the technology, it followed it up with a policy to back local manufacturers. Seoul identified five South Korean and gave them an initial order of one million handsets each.

The rest is history.

It is also more costly to make gear in India because of the scale of the global manufacturers. "Indian manufacturers face a (cost) disadvantage of between 20 per cent and 27 per cent against foreign that import," says Goyal of the Equipment Manufacturers' Association. Finished equipment can be imported at zero duty, but components bear a duty ranging from 10 per cent to 15 per cent. Indian gear makers pay 16-18 per cent interest on loans, far above their Chinese rivals. Infrastructure costs like power are higher here as well.

While most global gear declined to comment on their imports, a source in said only a fourth of its $800 million worth of equipment sold in India was made locally. He added importing from China was 30 per cent cheaper.

The equipment business is controlled by five - Huawei, ZTE, Ericsson, Nokia Siemens, and Alcatel - which have financial muscle to heft in big deals. With managed services, where equipment build and maintain networks for service providers, it has become a high-roller's game.

These get support from their governments. Chinese banks have billions of dollars in credit lines for buying Chinese equipment. The banks offer credit at two per cent interest, payable in 15-20 years and the interest becomes due only from the fifth year. "Which Indian manufacturer can compete against that? We are looking for the best deal. Why should we bother whether the gear is homemade or foreign? We pass the benefit to the consumer in low tariffs," says a senior executive at a services company that buys most of its equipment abroad.

It is a fair call for services fighting a bitter battle for subscribers. Unless, of course, the government steps in to boost local production. That would mean changing the inverted duty structure, charging lower licence fees if buy Indian, providing funds for research, and raising import duty on products made in India. Some say India should learn from China, which asked foreign to transfer intellectual property if they wanted to sell equipment.

Some tentative steps have been taken. State-owned Railtel and Power Grid Corporation have local sourcing in their contracts. And Indian have outbid international competitors for contracts by the new special-purpose vehicle set up by the government to implement the national fibre-optic network. The government intends that by 2019-20, only 20 per cent of equipment in the country should be imported. At the moment, that seems like a pipe dream.

image
Business Standard
177 22