ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Telecom Equipment Industry: Challenges and Prospects

This article deals with the major challenges faced by India's telecom equipment manufacturing sector, which lags behind telecom services. Only 35% of the total demand for telecom equipment in the country is met by domestic production. This is not favourable to long-term sustained growth of the telecom sector. The country is also far behind in R&D spending when compared to other leading countries. India needs to see an increase in R&D investment, industry-academia-government partnership, better quality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing.


Telecom Equipment Industry: world at 278.85 million as on 31 December 2007. The number of annual additions
Challenges and Prospects in 2007 was three times that in 2004. Also, the t ele-density went up by nearly
170% over the same period, from 8.62%
at the end of December 2004 to 23.87%
Seema Sharma, Lokesh Singla at the end of December 2007 (TEMA 2007).

This article deals with the major challenges faced by India’s telecom equipment manufacturing sector, which lags behind telecom services. Only 35% of the total demand for telecom equipment in the country is met by domestic production. This is not favourable to long-term sustained growth of the telecom sector. The country is also far behind in R&D spending when compared to other leading countries. India needs to see an increase in R&D investment, industry-academiagovernment partnership, better quality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing.

Seema Sharma ( is with the Department of Management Studies, Indian Institute of Technology, Hauz Khas, New Delhi. Lokesh Singla (lokeshsingla79@ is with the Bharti School of Telecom Technology and Management, Indian Institute of Technology, Hauz Khas, New Delhi.

ith an average annual growth rate of more than 8.5% in the last five years, the Indian economy is among the fastest growing in the world. In 2007-08, the gross domestic product (GDP) grew by 8.7%, backed by an 11% growth in the services sector and 8.7% in the manufacturing sector. The information technology (IT) and telecom sectors made substantial contributions to the growth of the economy.

The phenomenal growth of the IT industry in India has given the country the status of a know ledge power house. But its competitiveness is restricted to the services sector which increasingly contributes to the high growth rate of the economy. This sector occupies a significant position in the Indian economy with a contribution to GDP of more than 60% (Table 1). However, despite a good growth performance in the last three or four years, the m anufacturing sector is still a relative non- performer with its 15.4% share in GDP in 2007-08 (Reserve Bank of India 2008).

The communication services It is noteworthy that the growth of the t elecom sector in India has surpassed that of China.

By 2010, telephone connections are expected to total 500 million, which will require an additional investment of about $40 billion. This will create 0.5 million more jobs. Twenty million broadband c onnections and 40 million internet c onnections are also expected to be in place by 2010. Given India’s low telecom p enetration rate and high population d ensity, the potential for the wireless industry is huge.

Equipment Manufacturing

The communication sector comprises both services and equipment manufacturing. However, India’s telecom equipment industry has not been growing at a s atisfactory rate and it accounts for only 15% of the total telecom industry. Sunil Mani (2005) has a detailed discussion of the relative success of China in promoting the equipment industry and the failure of India in the same sector.

Table 1: Contribution of the Communication Services Sector

sector is the fastest growing sec

to India’s Growth Performance

tor in India’s economy. Since

Year Services Sector Communication Sector

Contribution to Growth Rate

Contribution to Growth Rate Real GDP Real GDP

2003, it has been growing at an

average rate of 16.0% per annum

2003-04 58.9 8.8 9.5 15.3

(Table 1). It accounts for about

2004-05 60.2 9.9 10.2 15.6

4% of GDP and the recent high

2005-06 61.1 11.0 10.7 14.6

rate of growth has contributed to

2006-07 61.9 11.2 11.4 16.6

about 11% of the growth in over-2007-08 62.9 10.7 11.8 17.0

all GDP of the country. According Source: Annual Report 2008, Reserve Bank of India, New Delhi.

to figures published by the EPW Research Foundation (2008), telecommunications is one of the sectors attracting a major chunk of the foreign direct investment to India. This also highlights the importance of this sector in the economy.

The telephone subscriber base in India increased from five m illion in 1991 to more than 270 million in 2007 and it is growing at an average annual rate of more than 27%. India had the third l argest telephone subscriber base in the

It is important to note that imports now account for 64.9% of the total production (Figure 3, p 17). This indicates the need for immediate attention and further expansion so that the industry can cater to the growing demand for user-end equipment in the country. The total production of electronic hardware in India during 2006-07 was worth Rs 660 billion (Figure 1, p 17). This was a growth of 17% over 2005-06 when the total production was estimated at Rs 566 billion. The

january 3, 2009

Economic & Political Weekly


Table 2: Current Subscriber Base (millions, as on 31 December 2007)

Total subscribers 278.85

GSM subscribers 172.23

CDMA subscribers 61.39

Fixed line subscribers 45.23

Tele-density (%) 23.87

Source: Telecom Regulatory Authority of India (TRAI) Annual Report 2006-07, Government of India; Economic Times, 12 April 2007.

Figure 1: Electronics Hardware Production (billions, 2001-02 to 2006-07)

660 600

566 505

500 438


327 300



0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Source: Electronic and Computer Software Export Council, New Delhi.

Figure 2: Growth Rate in Production of Electronics Hardware and Telecom Equipment (in %)

18 16.8

16.6 16

Electronic Hardware 12

15.2 12

9.5 8




Telecom 4


2003-04 2004-05 2005-06 2006-07 Source: Electronic and Computer Software Export Council, New Delhi.

annual average growth of this sector in the last five years has been 15%.

The production level of telecom e quipment during 2006-07 registered a growth of 36% over 2005-06. In value terms, the production of telecom equipment went up from an estimated Rs 70 billion in 2005-06 to Rs 95 billion in 2006-07. The growth pattern of electronics hardware and telecom equipment is shown in Figure 2.

If we take a look at the demand for t elecom equipment in India and the portion of it met by domestic production and imports, we find that India lags far behind in equipment manufacturing.

As Figure 3 shows, during 2006-07, only 35% of the total consumption was met by domestic production. The remaining 65% were imports, which jumped from 56% in 2005-06. This is a major concern for Indian telecom eq uipment manufacturers. Now some Indian companies,

Economic & Political Weekly

january 3, 2009

namely, Bharti Enterprise, Tejas Networks, HFCL, ITI and Shyam Telecom, have begun manufacturing telecom equipment. As for competence, they are good in their own l imited fields.

Challenges and Future Strategies

Indian telecom equipment manufacturers

face many challenges. If we c ompare the Indian industry with that of other countries such as China and Japan, we see that we lag far behind in terms of the number of start-ups and small and medium enterprises (SMEs). And India is behind many developed countries not only in spending on research and development (R&D) but also in the number of scientific researchers. This is clear from the data p resented in Figure 4 and Table 3 (p 18).

Of the 0.85% R&D expenditure in India, 77% comes from the public sector. The p rivate sector’s share is only 20% and u niversities spend just 3%. In contrast to this, the average R&D expenditure in Organisation for Economic Cooperation and Development (OEcD) countries is 69% by enterprises, 18% by

u niversities and 10% by government. So, the private sector component in R&D spending needs to go up.

India spends almost the same on education as many developed nations. Also the percentage of students studying in the science stream is almost equal, but the number of people doing research in India is far less. This shows that the country does not provide education of the quality that motivates students to undertake research. The number of persons doing research and development in the US is 4,605 per million in Japan, it is 5,287 per million, and in China, 1,564 (Table 3). In India, there are only 119 researchers per million of population. This is an area of major concern and worry.

Less expenditure on R&D results in less manufacturing of high-tech products. Therefore, the proportion of high-tech exports as a percentage of total manufacturing exports is very low in India’s case (Table 4, p 18). The huge difference between China and India in the proportion of hi-tech exports signifies the tremendous challenge facing the Indian manufacturing sector. There are various strategies that can be followed to promote domestic telecom equipment manufacturers. t Create a stronger relationship among industry, academia and government to provide conditions to conduct research with a definite goal. t Foster a research culture in academic organisations. Incentives should be given to the industry to support research in academia and also to encourage employees to do doctoral studies. t Implement a government policy of purchasing from SMEs and start-ups, which will promote their growth. t Provide start-up capital to entrepreneurs from public funds because high-end start-ups and SMEs mostly have intangible assets like intellectual property, which do not tempt venture capitalists to invest.

Figure 3: Total Consumption, Local Production and Imports of Telecom Equipment (billions) 800 700 600 500 400 300 200 100 0

2002-03 2003-04 2004-05 2005-06 2006-07 Source: Estimates of Telecom Equipment and Turnkey Services Market (TEMA), New Delhi.

224 148 76 340 140 200 365 160 205 439 178 261 771 270 501 Total consumption Local production Imports

Figure 4: R&D Expenditure as a Percentage of GDP for Different Countries

4 3.14

3 2 1 0

2.68 2.64 2.49 2.25 2.16 1.89 1.44 0.85

Japan US Korea Germany Singapore France UK China India

Source: Human Development Reports 2007-08, UNDP.

Table 3: Expenditure on Education, Students of Science, Employed in Industry and Researchers in R&D

Country Expenditure Students Employed Researchers on Education of Science in Industry in R&D (Per (% of GDP ) (% of Tertiary (% ofTotal Million People) Students) Employed)

US 5.9 16 21 4,605

UK 5.4 22 22 2,708

Korea 4.6 40 27 3,187

China 4.2 31 18 1,564

India 3.8 22 13 119

Japan 3.6 31 18 5,287

Source: Human Development Reports 2007-08, UNDP.

Table 4: R&D Expenditure, Manufactured Exports and Hi-tech Exports

Country R&D Expenditure Manufactured High-tech Exports (% of GDP) Exports (% of (% of Manufactured Merchandise Export) Exports)

Japan 3.14 92 22.5

US 2.68 82 31.8

Korea 2.64 94 32.3

UK 1.89 79 23.6

China 1.44 96 33.9

India 0.85 70 4.9

Source: Human Development Reports, 2007-08, UNDP.

t Develop an R&D guidance system that assists in new product development and technology upgradation in SMEs and s tart-ups. t Assist SMEs and start-ups to establish information management systems for b etter efficiency.

A continuous, joint quality improvement effort can raise the calibre of products and service standards among e nterprises. Incentives can be provided to encourage entrepreneurship and business efficiency in telecom equipment m anufacturing.

We can say that the time has come for the government to take steps to develop this industry. Development of this sector will also be helpful to others such as the semiconductor industry. Semiconductor devices are used in telecom equipment and a development of manufacturing will help develop the vital silicon industry. Mobile handsets and equipment are one of the biggest markets. In view of this, a number of proposals and projects for the semiconductor manufacturing industry have been announced by the Indian government. This augurs well for not only the telecom equipment industry but also the entire electronic hardware industry. We can expect India to soon emerge as a major manufacturing hub for telecom equipment. It is worth noting that Indian telecom equipment manufacturers like Tejas Networks, ITI and Bharti Teletech already provide world-class turnkey services c ompeting against the world’s leading manufacturers.


The telecom services sector is the fastest growing sector of the Indian economy and it contributes significantly to GDP. However, the telecom equipment sector is not able to meet the demand created by the telecom services sector. In 2006-07, 65% of the total consumption of equipment was met through imports. This trend has far-reaching implications for the economy and should not be allowed to continue for long. In a country like India which has a problem of massive unemployment, the manufacturing sector should be promoted to create more employment opportunities.

Therefore, there is a need to initiate policy measures that can motivate growth of the telecom equipment industry. This will also help the growth of other industries through forward and backward linkages. This study emphasises that there is the great need to spend more on R&D because India is far behind leading countries in this field such as the US, Japan, Korea, and China. Apart from this, the quality of e ducation has to be improved to encourage more to undertake research while an emphasis is laid on doctoral and post-doctoral research. Apart from this, an industry-academia-government partnership in research activities should be promoted.


Central Statistical Organisation (2008): National Statistics 2007 (New Delhi: Ministry of Statistics and Programme Implementation, Government of India) (

Department of Telecommunications (2007): Annual Report 2006-07 (New Delhi: Ministry of Communications and Information Technology, Government of India) (

Electronic and Computer Software Export Council (2007): Export Scenario: Electronics Equipments (New Delhi: Government of India).

EPW Research Foundation (2008). “Macroeconomic Indicators”, Economic & Political Weekly, Vol 43, No 35, 19 January.

Government of India (2008): Economic Survey 2007-08 (New Delhi: Ministry of Finance, Government of India) (

Mani, Sunil (2005): “The Dragon vs the Elephant”, Economic & Political Weekly, 24 September.

Reserve Bank of India (2008): Annual Report 2008 (New Delhi: Government of India).

Telecom Regulatory Authority of India (2008): Annual Report 2006-07 (New Delhi: Ministry of Communications and Information Technology, Government of India) (

Telecom Equipment Manufacturers Association of India (2007): Market Report 2006-07 (New Delhi:

United Nations (2008): Human Development Reports 2007/2008 (New York: United Nations Development Programme (UNDP)).

For the Attention of Subscribers and Subscription Agencies Outside India

It has come to our notice that a large number of subscriptions to the EPW from outside the country together with the subscription payments sent to supposed subscription agents in India have not been forwarded to us.

We wish to point out to subscribers and subscription agencies outside India that all foreign subscriptions, together with the appropriate remittances, must be forwarded to us and not to unauthorised third parties in India.

We take no responsibility whatsoever in respect of subscriptions not registered with us.


january 3, 2009

Economic & Political Weekly

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Back to Top