GDP : Growth Boosters?

The Indian telecom industry is roaring. Denying to bow down to the pressures
of the slowdown, the industry managed to contribute to the country's GDP at a
decent pace. The government too realizes the potential of the sector and has
aspirations of making the telecom equipments manufacturing sector one of the
largest by 2010, globally.

The contribution of the Indian telecom sector to the growth of India's
economy is immense. Recently, Gurudas Kamat, Minister of State, Communications
and Information Technology in Mumbai stated that telecom is directly
contributing more than 1.5% of the country's GDP, and has a multiplier effect on
growth because of connecting the people and business around it.

Manoj Kohli, CEO and joint MD, Bharti Airtel says telecom will be one of the
top three sectors in the country. It has already overtaken FMCG. “Telecom will
significantly contribute to India's GDP in the next five years, when our economy
actually picks up,” he adds.

Looking at the trend in the past few years, telecom has been a key direct
contributor to the country's economy. According to a study by Frost & Sullivan,
a global consultancy company, the Indian telecom industry had revenue
contributions of over Rs 1,05,287 crore in 2006, and was expected to grow at a
CAGR of 26.8% to reach Rs 344,921 crore in 2012.

However, Gartner, a global information technology research and advisory firm
says the revenue from India's telecom sector will cross $30 bn by 2013.

The Indian telecom industry is the second largest wireless market in the
world. With a total wireless subscriber base of 435 mn at present, it is
targeted to reach 771 mn by 2013. In addition to this, India has nearly 37.66 mn
landline subscribers.

'Connecting rural India' for both voice and data connectivity is the main
target of India's telecom industry. Interestingly, 74% of new wireless
subscribers are now coming from rural areas as compared to 42% from the urban
areas.

India aims to develop the telecom equipments manufacturing sector as these
manufacturing facilities, apart from making the country self-reliant, generate a
lot of secondary employment, which ultimately reflects in the country's economy.
Sustained government efforts in this area are needed to yield better results.

The government is working on many initiatives to further improve the telecom
sector. These new initiatives will bring inclusive connectivity in both rural
and urban India; mobile number portability that will not only give more choice
to customers but also lead operators to further improve their services to retain
their customers and help in auctioning spectrum for 3G and WiMax within this
financial year.

There is a significant telecom equipments manufacturing base in the country
and there has been a steady growth of this sector during the past few years.

Rising demand for a wide range of telecom equipments, particularly in the
area of mobile telecommunications, has provided excellent opportunities for
domestic and foreign investors in the manufacturing sector. The last two years
saw many renowned telecom companies setting up their manufacturing bases in
India. Ericsson has set up a GSM radio base station manufacturing facility in
Jaipur. Elcoteq has started handset manufacturing facilities in Bengaluru. Nokia
and Nokia Siemens Networks have set up their manufacturing plant in Chennai. LG
Electronics has set up a GSM mobile phones manufacturing plant near Pune.
Ericsson launched its R&D center in Chennai. Flextronics has set up an SEZ in
Chennai. Other major companies like Foxconn, Aspcom, Solectron, etc, have
decided to set up their manufacturing bases in India too.

The government has already set up the Telecom Equipment and Services Export
Promotion Council and Telecom Testing and Security Certification Center (TETC).
A large number of companies like Alcatel, Cisco, etc, have also shown interest
in setting up their R&D centers in India. With these kinds of initiatives, India
is expected to be a manufacturing hub for the telecom equipments industry.

Investors are looking at capturing the gains of the Indian telecom boom and
diversify their operations outside developed economies that are marked by
saturated telecom markets and lower GDP growth rates.

FDI inflow in the telecom sector too remains the highest among all sectors.
As one of the biggest contributors to GDP growth, the telecom sector is expected
to catalyze the macro-economic growth through higher productivity, speed, and
efficiency.

Inflow of FDI into India's telecom sector during April 2000 to March 2009 was
about Rs 2,75,444 mn. Also, more than 8% of the approved FDI in the country is
related to the telecom sector.

Growth Path

Tele-density in the country increased from 5.11% in 2003 to 36.98% in March
2009. In the rural areas, tele-density increased from 1.49% in March 2003 to
15.11% in March 2009 and in the urban areas, it increased from 14.32% in March
2003 to 88.84% in March 2009. This indicates a rising trend of Indian telecom
subscribers, and hence, an increase in the telecom's contribution in the
country's GDP.

Despite the global downturn and slowing mergers and acquisitions (M&A),
twenty such deals worth $9.15 bn took place in the country's telecom sector in
the last fiscal. The study on 'mergers and acquisitions in the telecom sector'
by the Associated Chambers of Commerce and Industry (Assocham), said the telecom
sector had accounted for 33% of the total M&A deals this fiscal. Most of the
deals were in-bound with foreign companies infusing money to the tune of $8.06
bn. While the Indian firms spent $408 mn on offshore buyouts, mergers worth $679
mn were announced during the period of April-November 2008.

The strength of the Indian telecommunications industry is evident from the
fact that it is one of the sectors that saw higher salary hikes.

Why did we Miss this?



The industry pundits see VAS and rural markets driving the Indian telecom
market ahead. It is crucial that the government approach towards newer
technologies has to be more meticulous. Going by a study of LECG Corporation, a
global consulting firm, the delay in the auction of 3G spectrum in the past two
years has led to a loss of around $16 bn (Rs 75,360 crore).

Industry doyens believe investments in 3G in India would lead to an economic
benefit worth around $70 bn. 3G is going to be accompanied by an increased usage
of mobile broadband (or high-speed Internet services). Experts says that for
every 10% increase in the broadband penetration, there is an increase of
0.1-1.4% in the country's GDP.

These revenues could have been garnered from subscribers added, license fees,
spectrum fees, direct and indirect employment, revenues to the value added
services of operators, handset sales, and even income tax to the government.

We salute the patience of the telecom industry that waited for their turn to
show performance and shown the road to others. We are also forced to advocate
the government and the warring fractions of the telecom industry that any
further delay in decision making will dent the GDP growth. While addressing the
country's 63rd independence day, our Prime Minister said the country's biggest
challenge is to achieve 9% growth. Telecom can surely show the road ahead and
contribute significantly to the country's growth.

 

Heena Jhingan

heenaj@cybermedia.co.in