FDI in Telecom should be restricted to manufacturing sector. http://wp.me/p1ZsI2-3i
By. P. Abraham Paul.
There was a time when people here in India had to wait for 3 to 5 years to get a telephone connection. Things have changed. Step into any pan shop across the street with some personal ID and walk away with a ready to use phone service card with no hazels.This happened due to removal of monopoly and bringing private sector into telecom space.
Telecom is a serious business that need heavy initial investment, operational costs and continuous expansion and up-gradation costs. This calls for investment from all quarters. While allowing additional FDI in Telecom and other sectors is welcome, there must be sufficient safeguards against erosion of countries economy, security and rise in cost of service. The too many clauses imposing restrictions or control are not practical and prone to numerous anomalies leading to litigations. Rule of the stick is a thing of the past.
The solution lies in diverting the FDI to local manufacturing of telecom systems. Growth in Telecom sector in India need tremendous amount of investment. According to the assessment of the Working Group on the Telecom Sector in 2005, an investment of Rs.1,60,000 Crore is needed in the Telecom sector in the tenth plan.
A major part of this will be for the Telecom systems hardware as well as software. Currently most of these are imported from countries from where the FDIs are also likely to come from. In effect, these exporting countries will be giving with one hand taking away with other hand. The trick of the trade is to give in kind sans benefits and take out in cash with interests, incentives, profits and premium.
With the majority holding by the FDIs, the Indian counterparts will have no bargaining strength. The cost of the systems will go up because the foreign vendor competition in the selling market will vanish, as most of these FDIs will have direct or indirect interests in the selling companies.
There is also the danger of passing on systems/technology which are already obsolete and no demand elsewhere to Indian networks. With fast changing technology, the telecom investment projections always go haywire with the very low life cycle period of telecom hardware, software and the middleware making it necessary to bring in fresh investment in 2 to 3 year span for upgrades/replacements and change over to higher technology systems.
It is not possible to develop and customize the externally manufactured systems exclusively for Indian needs. The hardware sold has very limited life span and for the software the buyers pay exorbitantly, is only for operational license and do not have access to make any change, modifications or improvements.
As far as the question of security is concerned, even now the system is accessed by the vendor mostly from their foreign facility for diagnosis and other engineering purposes, through dial up or leased line access.
Therefore, manufacturing the systems within the country is the only way to overcome these issues.
For the above reasons, the FDI is needed in the sector of indigenous manufacturing of Telecom systems and not in the operational business. The ITI, Tata Telecom, BPL Telecom, HFCL, and many other potential telecom companies in India could have tie up with foreign Telecom vendor companies to set up manufacturing facilities in India with the proposed 74% FDI or more. It shall be made mandatory for the foreign telecom manufacturers to transfer the technology to Indian counter part. Perhaps, it would be beneficial to look what China did in this field in the recent past.