Business Economics & Services Team
The Great Telecom War between India and the US
Electronica 2015 held recently in Germany has estimated that in 2015-16, the global electronics industry will grow by four percent to reach a trade volume of US$ 2.2 trillion, an all time high and will inch towards surpassing the global oil trade to become the most traded commodity in the world. Also, it estimates that the global electronics components trade, where India has considerable stake, will grow by US$ 547 billion.
In the meantime, India's General Budget 2014-15 proposed a customs duty of 10 percent on specified telecom gear, an item being imported mostly from the US.
The US telecom majors contention is that once this tax is imposed, it will tantamount to India abrogating the WTO Information Technology Agreement (ITA) since the said product comes under the purview of zero duty. There are many reasons that have been adduced by the US trade body -US-India Business Council (USIBC) - to substantiate their contention. The foremost is that it will put the digitizing drive in the back burner since the telecom gears are used for 3G and 4G systems. Secondly, the imposition of the duty will further worsen the bottom lines of telecom majors, which are reeling under heavy debt burden. Third,it will adversely affect the flow of FDI into the country.
Interestingly, the US based telecom companies operating in India such as CISCO, AT&T, IBM, Apple, DELL etc. are unveiling plans to invest more in India. For instance, CISCO has announced its plan to invest US$ 1,7 billion this year. Though, there was scaling down in the operations in IBM in certain segments, it is generally bullish about India. The present demand, industry insiders feel, is a proxy war to force the Indian governments not to do anything that adversely affect their interest, when they are bullish on India on a long term basis.
The contention of the Indian electronics and telecom component manufacturers is equally sound. Many feel that the industry was not properly consulted when the Indian government had signed the ITA to bring the customs duty to zero level. That was a jolt from the blue and many fledgling electronics and telecom companies had bitten the dust since they could not withstand the onslaught of heavy imports. Domestic production was not at all profitable. Some companies survived with their hard work, innovation and staying power. It is for the government to see that no further damage is done to the industry, going by the heavy requirement of electronics and telecom components for the country. They roll out statistics to prove their point. By 2020, India needs electronics goods worth US$ 400 billion. The domestic production will be at best US$ 100 billion. The rest will have to be imported, creating huge imbalance in the country's balance of payments postion. It is inevitable that the domestic production is encouraged to stem the outflow of resources.
The Department of Telecommunications (DOT) of India has a different version. It claims that the ITA has not been compromised since the 10 percent duty will be imposed on goods that are not covered under that list. Of course, some of the items under this category were not invented in 1997, when India signed the ITA in 1997, and came into operation in 2000.
The conflictual position is getting murkier with the US trade body's plea that India should be prohibited from increasing the number of electronics items eligible for compulsory licensing, a power vested with the host country when it feels that certain goods in the national interest should be domestically manufactured and the license is accordingly granted.
Are we witnessing a war of attrition as that is being waged in the pharmaceutical sector. Only time will tell that. One thing is clear that both countries have considerable stake in the game.
For more information: jthac1234@gmail.com,jthac1234@yahoo.com
The Great Telecom War between India and the US
Electronica 2015 held recently in Germany has estimated that in 2015-16, the global electronics industry will grow by four percent to reach a trade volume of US$ 2.2 trillion, an all time high and will inch towards surpassing the global oil trade to become the most traded commodity in the world. Also, it estimates that the global electronics components trade, where India has considerable stake, will grow by US$ 547 billion.
In the meantime, India's General Budget 2014-15 proposed a customs duty of 10 percent on specified telecom gear, an item being imported mostly from the US.
The US telecom majors contention is that once this tax is imposed, it will tantamount to India abrogating the WTO Information Technology Agreement (ITA) since the said product comes under the purview of zero duty. There are many reasons that have been adduced by the US trade body -US-India Business Council (USIBC) - to substantiate their contention. The foremost is that it will put the digitizing drive in the back burner since the telecom gears are used for 3G and 4G systems. Secondly, the imposition of the duty will further worsen the bottom lines of telecom majors, which are reeling under heavy debt burden. Third,it will adversely affect the flow of FDI into the country.
Interestingly, the US based telecom companies operating in India such as CISCO, AT&T, IBM, Apple, DELL etc. are unveiling plans to invest more in India. For instance, CISCO has announced its plan to invest US$ 1,7 billion this year. Though, there was scaling down in the operations in IBM in certain segments, it is generally bullish about India. The present demand, industry insiders feel, is a proxy war to force the Indian governments not to do anything that adversely affect their interest, when they are bullish on India on a long term basis.
The contention of the Indian electronics and telecom component manufacturers is equally sound. Many feel that the industry was not properly consulted when the Indian government had signed the ITA to bring the customs duty to zero level. That was a jolt from the blue and many fledgling electronics and telecom companies had bitten the dust since they could not withstand the onslaught of heavy imports. Domestic production was not at all profitable. Some companies survived with their hard work, innovation and staying power. It is for the government to see that no further damage is done to the industry, going by the heavy requirement of electronics and telecom components for the country. They roll out statistics to prove their point. By 2020, India needs electronics goods worth US$ 400 billion. The domestic production will be at best US$ 100 billion. The rest will have to be imported, creating huge imbalance in the country's balance of payments postion. It is inevitable that the domestic production is encouraged to stem the outflow of resources.
The Department of Telecommunications (DOT) of India has a different version. It claims that the ITA has not been compromised since the 10 percent duty will be imposed on goods that are not covered under that list. Of course, some of the items under this category were not invented in 1997, when India signed the ITA in 1997, and came into operation in 2000.
The conflictual position is getting murkier with the US trade body's plea that India should be prohibited from increasing the number of electronics items eligible for compulsory licensing, a power vested with the host country when it feels that certain goods in the national interest should be domestically manufactured and the license is accordingly granted.
Are we witnessing a war of attrition as that is being waged in the pharmaceutical sector. Only time will tell that. One thing is clear that both countries have considerable stake in the game.
For more information: jthac1234@gmail.com,jthac1234@yahoo.com
