July 15, 1997
Force 7 from FICCI
The economic reforms process in India has, by and large, been
government centred ever since it began in 1991. This is perhaps
a legacy of the four decades of dirigiste regime which followed
Independence from colonialism.
The 1991 financial crunch made the government take an about-turn
in policy and move towards a market economy. The paradigm shift
led the government to focus on liberalisation in different sectors
of the economy.
In the area of information technology, the Department of Electronics
had already struck a strategic alliance with the industry and
taken initiatives like building the 'software technology parks'
for promoting software exports, putting earth stations in the
STPs, encouraging the Education and Research Network or ERNET
and setting up of the Department of Electronics Accreditation
of Computer Courses scheme for standardising computer education
in the country.
In the area of telecommunication, the Department of Telecommunication
first formulated the National Telecom Policy. It was announced
in 1994. The policy provides for allowing private sector companies
into the telecom services business.
The telecom liberalisation process in India is unique in the sense
that right across the spectrum of telecommunication services,
opportunities have been thrown open to private companies.
Nevertheless, the implementation of the telecom policy got stalled
because initially the process was tender-centric. And later when
the tenders of the private companies were opened things became
The telecom sector reforms in India has reached an impasse. The
euphoria of 1994 is missing among the investors in the Indian
telecom sector. In this situation, fortunately, an initiative
has been taken by the industry.
The Federation of Indian Chambers for Commerce and Industry is
one of the three large representatives of trade and industry in
the country. FICCI constituted a task force on 'Telecom and Information
Technology: The Future' in April under my chairmanship.
The members inlcuded Sunil Bharti Mittal, chairman, FICCI Telecom
Committee; Aje Kumar Chaudhri, co-chairman, FICCI Telecom Committee;
Rajeswar Rao, DDG (ERU), Department of Telecommunications; Amit
Sharma, vice president and executive director, South Asia, Motorola;
D K Ghosh, president-elect, TEMA, and director, Siemens Public
Communications Network Limited and P K Sandell, chairman, TISA.
The task force consists of bureaucrats who have been policy makers
and also representatives of the industry. It met representatives
of the Indian industry and multinational companies operating in
India in the telecom sector.
The main achievement of the task force has been to reconcile differences
in interests and perceptions and the consequent lobbying and pressure
tactics that accompanies them. The difference are:
- between the service provider and the equipment manufacturer;
- between Indian-owned companies and multinational companies
- between rural telecommunication and urban telecommunication.
The major recommendations of the task force are:
- It is necessary to be clear about strategy if we want the
telecom industry covering both equipment manufacture and services
to grow in the country. Services constitute 80 per cent of the
global telecom business. Equipment take the remaining 20 per cent.
In terms of fulfilling the needs of the public, services come
first. Once the services grow the market for equipment manufacture
comes into being. In a way the trend can be compared to the dynamics
of the growth of the world trade. First comes the trade, a market
is established and then manufacturing becomes economically viable.
We would therefore recommend a strategy taking this basic sequence
in the dynamics of the growth into account. We have therefore
framed out strategy and recommendations to achieve a healthy growth
of the Indian telecom industry.
- In this context, the approach suggested by TEMA in a representation
to the government needs to be considered seriously by the government
and adopted. In the liberalised context, asking for a quota system
as in the case of garment/textiles, may not be possible. The strategy
of gradual reduction of duties may be desirable. The basic principle
of reducing duties on components and capital goods to zero needs
to be considered immediately.
- One function of the newly set up Telecom Regulatory Authority
of India is to facilitate competition and promote efficiency in
the operation of telecom services to facilitate growth in such
services. How can one player, DoT, have power over nationwide
STD and international calls and the private sector be prohibited
from providing these services?
- For manufacture, we should have the latest state-of-the-art
fab facility and we should also have large world scale component
industries. The question is how are we going to develop these
- The government should follow a strategy of making India an
attractive place for investment by multinationals so that the
Indian telecom industry can be approached from two angles. The
first would be India becoming a base of telecom equipment manufacturer
and would come the providing of services by multinationals who
would find India an attractive place for investment. The second
is the entering into JV by the Indian industrialists and becoming
original equipment manufacturers and suppliers and emerging finally
as competitors in the area of service providing. The example of
Shinawatra in Thailand should provide us with an object lesson.
- It appears that the best strategy for India's presence in
the manufacturing sector would be to attract MNCs to put up manufacturing
facilities. In this at least the following elements can be included:
(a) India can give the same type of incentive given by
successful countries. (b) India has an advantage in software
which is important in telecommunication. This skilled manpower
can be exploited. (c) India can have policies to create
substantial number of qualified software professionals to make
India an attractive destination for manufacturing.
- Closely linked with this issue of capability of indigenous
manufacture of telecom equipment would be the issues relating
to standards and research and development.
- One step in this direction would be to see whether the industry
can come together and set up a standards organisation. This has
happened in Europe. We would suggest that the STQC labs of the
DoE and the TISA can come to an agreement and the Rs 180 million
needed for equipping them can be got from the industry. This will
mean that the MNCs will have to be approached who are any way
in India and perhaps we can get the TRAI to look into the question
whether the standards set by the private initiative be as acceptable
as TEC standards.
- In this context, therefore, what should be the new strategy
for ensuring the vigorous growth of the Indian telecom industry?
The strategy will be based on the following four broad principles:
(a) An international vision and developing a global mindset.
(b) Increasing substantially the telecom market in India.
(c) Developing global levels of competitiveness by the
industry. (d) Enlightened and imaginative policy framework
- This will mean that the present system of tendering by DoT
will have to be drastically modified with the lowest bidder getting
the entire contract. In order to see that the others who have
set up manufacturing facilities are not affected, the circles
in which service providers have not yet been decided, should be
thrown open and to unlimited players. This will ensure that there
is no duopoly but multiple players in these circles which can
vary from 8 to 17 and automatically provide a market for the Indian
telecom industry which then can start manufacturing widely.
- The telecom services market has been broadly divided between
the urban and rural areas. Whereas urban areas are profitable,
the rural areas are considered to be unprofitable. We will have
to focus on the rural areas to see how services can be provided
there profitably. In fact the policy of the government must be
to see that rural telecommunication becomes a more attractive
proposition than the urban areas. This will mean giving of some
of the following concessions by the government. (a) A 10-year
income tax holiday for investment in rural areas. (b) Allowing
free import of technology liberally using the facility under para
11 regarding pilot project of the NTP '94 for rural areas. (c)
Allowing freedom to service providers to give mix of services
even at concessional rates so that investment becomes attractive.
(d) Facilities like 'Call Collect' must be liberally provided
in rural areas to encourage growth of telecom traffic from rural
- Another way of creating a greater market is to focus on building
a national information infrastructure.
- India will also need excellent telecom engineers for carrying
further the telecom revolution and growth at global levels. In
order to see that adequately skilled manpower is available, there
should be a 'troika' approach in generating this manpower. The
industry should provide the faculty and even dictate the course
content. The banks should provide cheap loans to students who
can take advantage of this. The government can provide the requisite
infrastructure for conducting the training programme.
Perhaps the most significant recommendations made by the task
force which, if implemented, will have a dramatic effect on the
growth of the telecom industry are:
- The change in the tender system of the DoT so that manufacturing
of telecommunication equipment in India may get a fillip.
- Introduction of the 'one-country two-systems' concept as introduced
by China to smoothen the process of Hong Kong's inclusion. This
can be done in the Indian telecom services sector by giving up
duopoly in those circles for which there are no bidders so far.
This will provide an opportunity for a large number of investors
coming into this sector and also lead to the unbundling of the
telecom sector. This will, in turn, create a situation as in Japan
and elsewhere of two types of service providers type I and II.
Type I would be the major network providers and Type II would
be the value added service providers who cater to a limited area.
Let us hope that the FICCI task force report will, at least, start
a debate on the critical issues facing the telecom sector today
and hopefully result in policies as recommended by the task force.
This will help the Indian telecom reforms to get out of the present
impasse and lead to rapid and healthy growth of the Indian telecom
and the information technology sector.
N Vittal is chairman of the Public Enterprises Selection Board. However, he is best known for his tenure as the secretary of the Telecom Commission and the many revolutionary policies he introduced.
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