'We will have to answer our next generation'

The WTO regime was to have been implemented in India in 2003. The Telecom
Equipment Manufacturers Association (TEMA) had persuaded the Government to delay
it to 2005 so that Indian manufacturers could gear themselves up. But the latest
announcements of mini-budget, has actually led to WTO being brought in the
fiscal 2003 itself. Some excerpts from an interview with NK Goyal, president,
and P Balaji, secretary general of TEMA

Let me begin by asking for your reactions on the latest finance ministry
announcements?

NK Goyal: All along we have been saying that if you are allowing
something to be imported at zero duty, allow its components also to be imported
at zero duty. And, also that do not create situations or circumstances that will
encourage people to import rather than make it here locally. After last year’s
announcements on duties for handsets and its components, a lot of companies said
they would be interested in manufacturing handsets in India. The latest
announcements will make local manufacturing even more expensive. Why was this
step taken, and what for? WTO did not ask for it? No expert recommended it. This
single step is going to discourage domestic manufacturers. Let me tell you our
future generation will ask us, why were we not manufacturing handsets, when
there was a demand of two million handsets per month.

But, it was these duty reductions that have caused the cellular market to
explode.

NK Goyal: No. It’s primarily the tariffs in a competitive market that
has made it happen. And in how many cases have we seen the duty reduction
benefits being passed on to the end user. If you look at the discounts you get
from handset vendors, you will get an idea of the margin. And have you heard of
any instance that there was a waiting period for getting any handset. Or, those
handsets were not affordable by any section of the society. Prices will come
down whether the government reduces duties or not, due to demand and competition
and not duty reductions.

What is coming in the way of faster movement on the domestic manufacturing
front?

NK Goyal: The country is suffering from four types of mindsets. One
mindset is that "Can we manufacture in the country? If it is cheaper to
import, then why should we manufacture". Yes, we can import everything on
earth. Then why don’t you make India a zero import duty country, and then
import everything from wheat to sugar to tomatoes to potatoes. The second
mindset is that "We have committed to WTO for zero duties. We can only do
it for telecom products, but if we do it for components, there will be big
revenue loss for the country". They do not understand that if people stop
importing components, there will be no revenue at all. The third mindset is that
"The turnaround time of ordering goods to its delivery is very high due to
poor infrastructure, and also labor laws are not manufacturing-friendly".
Here, the Government needs to take action. And the fourth mindset is
"Software is good for the country, it gives lots of employment. There is
nothing like this in hardware". Because of these factors, there is no great
enthusiasm about manufacturing.

Of late, there have been informal indications from the telecom ministry as
well as TEMA that the Government is once again thinking seriously about domestic
manufacturing.

NK Goyal: There has been a tremendous growth in telecom and the tele-density
targets of 2005 have been achieved in 2003. And we hope to achieve 100 million
numbers by the end of this year. This means an investment of Rs 50,000 crore in
this sector. All these things have made everybody realize that telecom hardware
is going to be very important. Also there is a realization that it is
manufacturing that will give the country a longer term economic growth. Because
of these things we see people talking about encouraging domestic manufacturing
now.

P Balaji: Let me also add here that the NTP 99 document not only talks
of promoting teledensity in the country, but also stresses on the need to
develop domestic manufacturing, and to give incentives to those service
providers who buy locally made equipment. And there were supposed to be policies
and guidelines to make that happen. However, as we all know, last few years
everybody, including the industry and Government, was grappling with licensing
issues. Now that has been more or less settled, we see the Government once again
taking up manufacturing. Task forces have been setup and reports are being
prepared.

What is the status of these?

NK Goyal: Nothing much came out of the SBIT report on hardware in the
late nineties, the ministry has once again, after consulting various industry
bodies come out with a Draft Hardware report in August 2003 where incentives
were supposed to be given for buying local hardware. Unfortunately, there also
we are not seeing much happening.

If nothing really is happening then,  what gives you the feeling that
the Government is serious about encouraging domestic manufacturing?

NK Goyal: The feeling comes because the telecom and IT minister, Arun
Shourie has himself said on so many occasions that he wants to encourage
domestic telecom manufacturing, and that he is convinced that along with
software hardware also must grow. And its on his initiative that the Draft
Hardware report was prepared.

P Balaji: The government knows very well what the policy and procedural
anomalies are and how they are affecting. So there has been progress. Secondly,
with volumes now picking up in telecom, a more clear and surer picture is
emerging for say in a five years time-frame. Earlier, there was lots of
uncertainty among service provider and because of that among manufacturers. Now
there is growth happening month after month, and there seems to be long-range
predictability coming in. With predictability and volumes in place, we will now
see industry driving domestic manufacturing more aggressively. Yes, one wishes
that all policies were in place so that manufacturers do not have starting
hiccups.

So when do you hope some announcements happening ?

NK Goyal: We are quite confident that there will be some announcements
before this financial year ends, before the Parliament ends.

As manufacturers, do you have faith that just like the minister got the
operators issue sorted out, he will also get the domestic manufacturers’
demands fulfilled?

P Balaji: With the minister taking personal interest, we are very confident.
Our experience with working with him is that when he takes up something, his
team does a lot of due diligence on that, and because of that he is able to
build a very strong case. That is why he is able to get the support of the other
ministers. We are very confident. We are not asking for too much — just level
playing field, and long term sustainability.

After TRAI’s success with the highly controversial and tough operator
issues, do you want TRAI also to play a role in helping the cause of domestic
manufacturing?

NK Goyal: TRAI has a role as they are involved in the implementation of
NTP 99. We had meetings with TRAI officials, and Pradip Baijal. They have given
us a very patient hearing, and we are sure of their support.

There has been some confusion between who is an Indian manufacturer, and
whether an MNC manufacturer is also an Indian manufacturer. How does TEMA view
this?

NK Goyal: We would like to put this on record once again that according
to TEMA anybody who has invested in India with the objective of manufacturing
locally is an Indian manufacturer. We do not believe in words like MNCs when it
comes to manufacturing, and for us all manufacturers are at par.

Don’t you think small local Indian manufacturers need special support
from TEMA if they have to survive the MNC giants ?

P Balaji: No, they don’t. We are seeing global trends, and just like we
have seen the auto ancillary industry take-off in India, we are sure telecom
manufacturers will also do very well. Stick to your core competence area, you do
not need to necessarily have a fully integrated manufacturing plant, or else
outsource.

But, most of the small manufact-urers are very worried today.

P Balaji: These worries and concerns are there not just in the minds
of small, but even large manufacturers. This has got nothing to do with size.
Just because things have moved very rapidly, and there have been technology
shifts between wireless and wireline. But in the long run, all the manufacturers
will survive, and be part of this telecom boom. The world trend is of
outsourcing and contract manufacturing, and domestic manufacturers will have a
big role there.

What is your demand from the Government for now ?

NK Goyal: We have asked the Government to immediately implement its
Hardware Report, and also take up the NTP 99 policy decisions on domestic
manufacturing. We have also recommended to allow the operators certain excise
duty and service tax benefits, if they buy from local manufacturers. These are
compatible with WTO requirements. Plus on the financing front, we want the
Government to allow ECB proceeds for buying locally-made products. And we have
asked for some approvals to be made compulsory for imported products.

Ibrahim Ahmad