Can India China-proof its telecom sector?

India’s dependence on China in the telecom sector is unlikely to reduce in the foreseeable future, writes N Chandra Mohan for South Asia Monitor 

N Chandra Mohan Oct 07, 2021
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Indian telecom

Against a broader technology decoupling narrative being pushed by the US vis-à-vis China, India, too, has hardened its stance on its economic relations with China after border tensions flared up last year. India is scrutinizing investments and reducing its dependence on imports and technology from Beijing. 

Telecom, especially mobile telephony, is an important battleground in this regard with Chinese giants Huawei and ZTE not being included in the trials for 5G technology. The Indian government has also launched production-linked incentive schemes to encourage global and domestic players to manufacture telecom equipment in the country.

The big question is whether India can China proof its telecom sector. The task is daunting considering the interdependencies that have developed between the two Asian giants, especially since the 2000s. China has made huge investments in India’s telecom sector. Huawei, for instance, has instance, has invested USD 2 billion including USD 170 million in an R&D centre in Bengaluru. Smartphone manufacturer Xiaomi has opened its seventh factory and announced USD 504 million of investments in March 2019 from its subsidiary Xiaomi Singapore Pte Ltd, according to the Delhi-based Institute for Studies in Industrial Development.

China's deep imprint  

China’s imprint is deep in India’s telecom sector. Take the state-owned telcos, BSNL and MTNL, for example. Around 44 percent of BSNL’s mobile network equipment has been supplied by ZTE. Huawei’s share is 9 per cent. Ten percent of MTNL’s mobile network equipment has been supplied by Chinese equipment manufacturers. Vodafone Idea Ltd and Bharti Airtel follow a multi-vendor strategy, but 30 to 40 per cent of their network has a Chinese contribution. Smartphones of Xiaomi, Oppo, Vivo and Realme are ubiquitous in the domestic market, with a dominant share of 79 percent in Q2 2021 according to Counterpoint.

The Indian government, for its part, formally denies banning the purchase of telecom gear from Chinese companies. While telecom service providers can deploy network equipment from various manufactures, it is subject to security conditions. As per the National Security
Directive on the Telecommunication Sector, the government will declare a list of trusted sources and trusted products for installation in the country’s telecom networks. BSNL and MTNL, however, have been urged to use locally-made rather than Chinese telecom equipment
to upgrade their mobile networks to 4G, which is bound to raise procurement costs by 20 percent or more.

Interestingly, despite not participating in 5G trials, Huawei still gets business opportunities in the country. In March, Bharti Airtel awarded a major infrastructural contract to expand its national long-distance network to this company for INR 3 billion.

According to reports, Huawei and ZTE also have login access to the trusted telecom products portal launched by the government on June 15. Both can now submit details about their products and services to the government in case operators exhibit interest in buying their equipment. Once the products are certified as trusted, operators can go ahead. For such reasons, Huawei is down but not out of the Indian market.

Lure of mobile telephony 

China-proofing India’s telecom sector is equally challenging with respect to mobile telephony. The lure of a booming domestic market -- 1.2 billion phone subscribers, of which 98 percent are mobiles -- has attracted the Chinese (and other global manufacturers like Samsung) to assemble phones here in a big way. They have responded to government initiatives like phased manufacturing programmes, Make in India, production-linked incentives to step up local assembly and value addition. Domestic production of mobile phones has increased substantially since 2015-16. The bad news is that it is largely based on imported parts and components.

Chinese leadership in mobile telephony thus has resulted in a “dependent form of development” – to borrow an expression of Prof Sunil Mani of the Centre for Development Studies, Thiruvananthapuram – which is reflected in India’s burgeoning trade deficit with China. In 2020-21, imports of electrical machinery, equipment and parts, among others, amounted to a third of India’s imports from China. In the first four months of this fiscal, this has risen to half of the imports from the mainland. For such reasons, despite all the bluster regarding reducing import dependence, China still remains India’s largest trade partner.

The only way to reduce this dependence on China (and foreign technology in general) is to course correct in directing state-funded R&D to develop indigenous capability in mobile phones technology, argues Prof Mani. Reviving the public telecom tech laboratory C-DOT, founded by the tech evangelist Sam Pitroda,  is imperative to focus on latest developments in mobile communications technology. He adds that a “consortium approach should be adopted in order to link the laboratory with domestic manufacturing firms so that the fruits of R&D can immediately be transferred”. 

Without such a boost to domestic R&D, there is no likelihood of technological decoupling. The upshot is that India’s dependence on China in the telecom sector is unlikely to reduce in the foreseeable future.

(The writer is an economics and business commentator based in New Delhi. The views expressed are personal. He may be contacted at nchandramohan@rediffmail.com)