The Mobile Communications Services Industry in India: Has it led to India becoming a manufacturing hub for telecommunication equipment?

Abstract

The growth performance of the Indian mobile communications services industry is now reasonably well recorded. It is one of the few industries in India which has travelled significantly from being a monopolistic and somnolent industry from the innovation point of view to an extremely competitive and technologically speaking dynamic industry. This is despite the fact that it’s very recent history has been punctuated by a few financial scams of sorts essentially due to the discretionary powers still wielded by the government in allocating the much needed spectrum and so on. Also notwithstanding the very recent distinction that is made between active users and the total number of subscribers (the former is only 70 per cent of the latter); the industry has witnessed a phenomenal increase in the length and indeed breadth of its coverage. There is also quantitative evidence to show that the extent of urban-rural divide too is on the decline. India now has one of the most competitive telecom services in the world and this has positive implications for its outsourcing industry where significant decline in communications costs is tremendously helpful for making this industry too remaining competitive when other factor prices have been showing an increasing trend. While all these augur well, questions had been raised about the ever rising trade balance in telecom equipments as the phenomenal growth of new subscribers that are added per month (in 2010 it averaged 18 million new subscribers per month) was met with equal amount of equipment imports. The increasing share of equipment imports was due to the weak manufacturing base that India possessed; ironic though as telecom equipment production was one of the first manufacturing industries that the Indian state had sought to develop through explicit state participation right after independence. Subsequently the state even attempted to craft a sectoral system of innovation in the telecom equipment industry. However none of these efforts resulted in India being successful in establishing a manufacturing hub. In the context the paper argues that the growth of market for telecom equipments precipitated by the growth of services has jump started an extremely dynamic manufacturing industry, especially over the last five years or so. The dynamism of the industry can be gauged from the fact that for the first time, India has a positive trade balance in mobile handsets facilitated by India emerging as a manufacturing and export base for cheaper handsets. Although the industry is dominated by MNCs, domestic firms have started making an entry into domestic manufacturing and indeed in innovations as well. However there is some evidence to show that most of the manufacturers are now more of assemblers of imported parts and components than manufacturers per se. This unique story of growth in services leading to the emergence of a manufacturing industry is the focus of attention and analysis in this paper. JEL Classification: L96;O25;O38