Security versus growth

Written by SP Ketkar | Updated: Aug 11 2010, 07:12am hrs
No power on earth can stop an idea whose time has come, cited Manmohan Singh in his famous budget speech in the early Nineties, and what followed thereafter is history now. Industrial licensing dismantled, technology sourcing simplified, imports and exports of raw material and capital goods liberalised investments flowed in and reforms became a way of life. Indian economy switched over to rapid growth tracks, services emerged as a dominant sectorreaffirming the development storyand we learned to think that no imports from any country would ever require government permission for imports.

However, based on advisories from intelligence agencies and in exercise of its powers in the interest of national security; the department of telecommunications (DoT) amended the telecom service licence agreement in December 2009 and made it mandatory for all service providers to obtain a security clearance from the DOT, before placing the final purchase order for procuring any equipment/software for giving telecom services under the licence. This was perhaps the beginning of a problem.

A little relief came in February 2010 when DoT clarified that security clearance was not required for passive infrastructure equipment like power plants, DG sets, tower material, cables etc. and also exempted equipment/software manufactured/developed by Indian owned/controlled companies. But, when DoT indicated to telcos in April 2010 that clearance of requests for import of Chinese telecom equipment may be delayed, it appeared like a call disconnection in the middle of an important conversation. And, given our imports from China, particularly of telecom equipment, telcos concerns seem well-founded.

Analysis of data available on the commerce departments Website shows that while Chinas share in our total imports gradually grew from 7.29% to 11.31% in the past five years, our import of telecom goods from China under the head 85.17 (section 17 of chapter 85) went up sharply from 13.97% to 61.27% during the same period. Many telcos, including Tata firms and Rcom, have come to heavily rely on Chinese telecom gear to keep their capital expenditure under control and remain competitive in the crowded low-Arpu Indian market. Therefore, any delay in import clearance of essential equipment is bound to adversely impact network roll-out/expansion, quality of service to consumers and telcos relationship with vendors for obtaining competitive prices and timely supplies in future.

It is also important to note that Chinese SEZs are home to many Fortune 500 companies and some telecom equipment provided by even the European vendors is actually manufactured in China. Also, just the way blacklisted contractors regain business by starting operations as different entities, delaying the clearance of imports from a particular country could only lead to new brands emerging from countries elsewhere in the world.

In this backdrop, DoTs move of June 2010 to allow import of Chinese equipment if tested and certified by an independent security agency appears to be well-directed. But the scope of certification must be expanded to cover all imports rather than imports from China alone. Further, if we cannot become competitive in manufacturing our own telecom equipment, we as a nation with the best IT talent in the world must build up in-house testing/certification capabilities similar to those of security audit firms such as Infoguard (USA), Electronic Warfare Associates (Canada) and Altal (Israel). The likes of TEC (Telecom Engineering Centre), C-DOT and NIC together with private players must emerge as leaders in this field. But thats for the long term.

Introducing any certification requirement at this stage would add a few months to the process of procurement and such a solution may not provide any immediate relief to telcos. May be; we could step up vigilance and explore very stringent monitoring of live networks in the border areas, as an alternative to import curbs, for allaying the home ministrys concerns over embedded spyware in the telecom gear. Or, just do what it takes, but not let the import delays eclipse our fastest growing infrastructure sector.

The writer is an alumnus of IIM-B