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N Vittal

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 licence-fee centric.

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 and
• 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 factories.
• 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 by government.
• 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 areas.
• 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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