Poised to Ride Digital Revolution, India Needs to Secure Its Digital Supply Chains

Vicious dumping by foreign players can kill Indian industries at an extremely fast pace, and once dead, it is difficult to revive such industries and recreate the jobs that are lost.

By Dr. Jaijit Bhattacharya

We are in the midst of a digital transformation, actively pushed by the might of the government. Digital is the foundation layer for all modern industries. It is almost impossible to find any device that is not embedded with digital – from smart phones to smart ACs, washing machines, cameras, automobiles, etc.

India is poised to ride this digital revolution, propelled by the massive thrust on the “Make in India” initiative. While digital infrastructure would be fundamental for the country to be future-ready in socio-economic and strategic sectors, it would be critical for India to secure its digital supply chains and for India to become technologically self-reliant in the digital sector.

Government policies has ensured that India has scaled up from being a miniscule player in the mobile phone industry, to becoming the second largest manufacturer of mobile phones globally. However, to ensure a robust, competitive digital industry would also require securing our digital supply chains and the ability to manufacture basic digital infrastructure to power ambitious Indian connectivity projects such as Bharatnet saturation project, 4G saturation project and the ongoing 5G rollouts. Such audacious connectivity infrastructure would further accelerate India that is already one of the fastest growing markets for digital consumers with over 119.5 crore telecom subscribers and 68.8 crore internet subscribers.

To begin with, becoming the global capital for optical fibre would be a good start towards securing our digital supply chains and feeding into our ambitions of connecting the last person standing, of achieving digital antodaya. Optical fibre is an intermediate good for manufacturing Optical Fibre cable. Thus Optical fibre is literally the backbone of the digital infrastructure. And again, the good news is that India’s manufacturing capacity for optical fibre cable, is roughly four times the domestic requirement, with an extremely high quality optical fibre being churned out. Such capacity for Optical Fibre has been effected through significant investments made by the Indian industry to cater to the domestic market and for backward integration.

The good news is that the Indian industry is rapidly scaling up to the expectation of becoming leaders in various sectors of the digital supply chain. Policies such as PLI (Production Linked Incentive scheme), has played a very critical role in this scale up. PLI is a policy tool that played a critical role in the 1980’s and 1990’s to foist a competitive auto industry in India.

Indian manufacturers have strong presence across entire value chain, starting from glass preform to optical fibre cable. Indian manufacturers invested more than Rs 5,000 crore during the last 10 years, to build the highly competitive optical fibre manufacturing industry. India’s annual optic fibre (OF) manufacturing capacity is around 95 million fibre Km and domestic consumption is around 35 million fibre Km. Thus, domestic manufacturing industry has not only catered to the domestic demand, but it has also contributed significantly to exports. India’s exported around 16 Mn fibre KM annually during last 3 years to more than 100 countries. Similarly, India’s annual optic fibre cable (OFC) manufacturing capacity is around 110 million fibre Km against domestic consumption of around 20 mn fibre km. India has excess optical fibre cable capacity compared to its annual demand, which is mainly used for exports. Additionally, major domestic players have announced capacity expansion, which will further strengthen the domestic output.

It appears that the optic fibre and the optic fibre cable industry is following the explosive growth trajectory that the Indian tile industry followed, where, as soon as the government provided trade remedies to protect the Indian tile industry from dumping by foreign players, the number of manufacturers shot up from almost single digit manufacturers to over 800 manufacturers in India, making Indian tile industry, a much feared and respected industry globally.

However, India’s digital industry is still a fledgling sector that can be smothered by predatory pricing and dumping by foreign players. Even though the Indian government has strong tools to remedy such trade injuries by imposing anti-dumping duties on such truant imports, it is important that such anti-dumping mechanisms are applied sooner than later. Vicious dumping by foreign players can kill Indian industries at an extremely fast pace, and once dead, it is difficult to revive such industries and recreate the jobs that are lost. Thus, delay in applying such trade remedies, would be disastrous for the digital ambitions of India.

In fact, this holds true for many an industry, as we have seen the impact of delay in applying anti-dumping duties in the chemical industry, that has decimated such industries in India, and has considerable increased imports into India.

Imports of optical fibre dumped in high volumes and at low prices, largely from China, is rapidly causing significant material injury to the domestic industry, in as much as it has been forced to sell its goods at a loss, just to survive in the market. The injury of domestic industry due to unfair business practices of China and other countries is evident from the DGTR (Directorate General of Trade Remedies, Ministry of Commerce) final findings, as DGTR has recommended imposition of anti-dumping duties of upto 25 percent on fibre imported from China, Korea and Indonesia after conducting comprehensive, public investigations.

At this point, it is important to mention that trade remedy is not the same as protectionism. Many with limited understanding of trade issues, end up terming trade remedies as protectionism. Protectionism is when in 2019, US imposed tariffs on billions of dollars worth of goods from around the world, and in particular China. This also impacted exports from India to US. The US further imposed a 10% levy on $200bn worth of Chinese products. In May 2019, the US government announced plans to impose a further 25 percent tariff on $325bn of other Chinese goods. This was to protect a weak US industry. This is protectionism. However, when one is defending one’s globally competitive domestic industry that is under attack by predatory foreign industries that sells its goods in India at prices that are lower than their own domestic pricing, then that is “trade remedy” and not protectionism. Unfortunately, not too many understand this critical difference, and thus view trade remedies as US styled protectionism.

Coming back to the Optical Fibre/ Optical Fibre Cable industry of India, various stakeholders have expressed fear that the domestic industry will face significant trade injury due to dumping by foreign players. Hence, there is an urgent need to create a level playing field for domestic players through fostering fair competition and using trade remedies with lightening speed, before offending foreign players can do perceptible damage to the local industry.

Considering that telecom industry plays a pivotal role in India’s socio-economic development, enabling innovation, and technological advancement across various sectors, the increasing prevalence of low-quality and counterfeit telecom equipment, especially from China, poses a significant threat to the reliability, security, and efficiency of our communication networks. Hence, there is also a pressing need for the immediate implementation of the Mandatory Testing and Certification of Telecom Equipment (MTCTE) to combat the influx of low-quality imports.

In July 2022, TEC (Telecommunications Engineering Centre) postponed the implementation of phase IV of MTCTE by one year, i.e to 1st July 2023, due to resistance from the industry. However, adherence to a high-quality standards is important for future-proofing the domestic network infrastructure and the government should take zero tolerance approach to curb low quality import on an immediate basis.

MTCTE is an essential step towards ensuring the safety and reliability of our telecom infrastructure, and it is critical that we implement it as soon as possible. Given the significance of these benefits and the push by the government for India’s, and perhaps the world’s largest rural digital connectivity programme, BharatNet saturation project, MTCTE needs to be implemented with great alacrity from 1 st July 2023, without any further delay.

Self-reliance in the optical fiber/cable manufacturing industry is important for national security, economic independence, supply chain resilience, technological advancement, cost efficiency, quality control, and strategic infrastructure development. By nurturing domestic capabilities, a country can strengthen its position in the global arena, ensure a
robust communication infrastructure, and drive socio-economic progress. The government needs to continue to keep a hawk eye on attacks on the digital industry that it has nurtured with such vision and care.

This article first appeared in ET Government, https://government.economictimes.indiatimes.com/blog/poised-to-ride-digital-revolution-india-needs-to-secure-its-digital-supply-chains/100670177