To make or not to make - that is the Indian question

As India prepares for its largest ever expansion of telecoms the Indian Ministry of Telecommunications is considering a proposal to make it mandatory for equipment suppliers to manufacture equipment in India. Michael Schwartz assesses India's progress towards becoming a telecoms giant.

With a tender worth more than US$3 billion for up to 40 million GSM lines in the offing, the Indian telecoms market is growing fast. But bidding for BSNL/MTNL tenders may be restricted to local companies if the recent Indian government interventions into the telecoms market become reality.

When I started writing about telecommunications I was invited to the London offices of a company called Wipro. I didn't know what to expect but after my briefing I had started to realise the potential of India to become a telecoms giant. To be frank, and as I mentioned to my Wipro hosts, I had heard a comment by a certain Philip Duke of Edinburgh that a piece of electrical equipment "looked as if it had been assembled by an Indian." Thank goodness my hosts saw the funny side of this - they had the self-confidence and self-belief in Indian capabilities to put the Duke's comment to one side and continue with the tasks in hand.

India has blossomed - and that is putting it mildly...

Deregulation has been a key player in this process. Even the decision to create four tenders in each of India's 16 provinces has been reviewed and declared insufficiently competitive.

Teledensity is now at its highest in India's history and the market for mobiles is insatiable. There are 63 million wireless sector customers and the sector is attracting about 2.5 million new users each month. What is more, the untapped giant - Indian rural telecoms - is set to play its part. Not only is India as a country one of the developing markets in telecoms (and one of the pillars of Developing Telecoms) but leading carriers such as Reliance Infocomm Ltd, Bharat Sanchar Nigam Ltd (BSNL) and Bharti Tele-Ventures Ltd are expanding into the under-serviced rural markets. These markets must surely be the next area for development in a country where so many of the population earn their living from the land (and, once again, a key area of interest for Developing Telecoms). 

It is easy to see why the comment was made. BSNL (state-run) is preparing a tender worth more than US$3 billion tender for up to 40 million GSM lines. As Reuters points out, it is India's largest telecoms gear deal. Nearly all telecoms equipment makers are in the fray for the contract.

Minister Maran's statement continued: "BSNL and Mahanagar Telephone Nigam Ltd boards have decided to make it mandatory for telecom equipment suppliers bidding for BSNL/MTNL tenders to manufacture equipment directly or through contract manufacturers in India so as to ensure the quality, timeliness of delivery and after sales service."

In fact, the Minister could have mentioned cost as it can be claimed that local manufacturing will help India cut network costs in this fast expanding market (and India is the fastest-growing of them all).

Advantages and Disadvantages

There are, needless to say, the advantages and disadvantages of the Minister's proposal. There is also one very important aspect to this question, namely those areas where little difference will be made. But first, the pros.

There will be lower transportation costs. That is almost so obvious it nearly does not need to be stated. If you can not find a lorry, then one of the three largest employers in the world, Indian State Railways, will be delighted to deliver for you. Because transport is there, and smaller distances have to be covered, deadlines are easier to meet.

A further advantage is that India's balance of payments gains. Most telecoms equipment is imported, draining India's precious foreign exchange reserves. That these reserves are precious may reflect other industries which have not been deregulated and remain uncompetitive. The Telecoms Ministry has a target of attracting at least US$800 million worth of foreign investment in telecoms manufacturing in the year to March 2006. This appears to be a modest target - but then it can also be classified as realistic.

Then there are the clear disadvantages. Some companies may have to neglect or shut down factories elsewhere. This can mean unemployment and a radical restructuring of company business strategies. One appreciates that the Indian labour force benefits but is this purely short term in its scope?

Will the demand that only products manufactured in India be bought be extended by the Telecoms Ministry to technical expertise eg, Indian-only product design and marketing? Will India really be at such an advanced stage that external advice will become superfluous?

Logical but flawed?

The dream of the Telecoms Ministry may seem a logical one and one understands the reasoning behind it but what if it leads to retaliation from other countries who refuse to buy Indian? One thinks of the success of companies in, say, Bangalore and the amount of time and effort it took these enterprises to become the successes that they are today. Are these achievements to be threatened by government dictat? The argument that quality will suffer is irrelevant. If finished products do not measure up they don't get bought - wherever the factory is located and whatever the production costs.

And then there are the propositions which have no effect whatever the Ministry's demands. Low manufacturing costs are a strength of Indian telecoms. Yes, but costs may be low or even lower in other countries: cheap products are already part of the telecoms landscape and they might still be cheaper in China. The latter is not the right country from which to invite retaliation.

Many companies are of course already in India and so the Telecoms Ministry is perhaps preaching to the converted. They have realised the benefits of India's manufacturing regime, either in their own right or via joint venture.

One final thought

India's economy used to be subject to all sorts of advice and intervention. Politicians were in real power and command. In a way one can understand the Telecoms Ministry's desire to play a part in decision-making. It was obviously not intended as a destructive suggestion. The real danger lies with those who can not kick the habit.

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Dayanidhi Maran
Well, so far so very good. A recent report by Reuters (India to insist on local phone making for government orders; 6 October, 2005) has raised a very important question. The report declares that global telecom equipment makers will have to manufacture equipment in India if they decide to bid for orders from state-run carriers. The Telecoms Ministry also proposes to request private operators to follow this methodology. The remark is attributed to Telecoms Minister Dayanidhi Maran.

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