State-owned telecom equipment manufacturer ITI Limited is among the key vendors providing equipment for the government’s ambitious telecom infrastructure projects. The company has been focusing on bringing its research and development (R&D) at par with its competitors. However, high financing costs and the lack of adequate financial incentives are taking a toll on the company. It is now looking to leverage the opportunities being thrown up by the government’s Make in India programme, which is expected to give the domestic manufacturing industry a fresh impetus. K.L. Dhingra, chairman and managing director, ITI Limited, shares his views on the opportunities in the telecom equipment manufacturing segment, the issues and challenges faced by vendors, and the strategies being considered by the company for competing with foreign telecom equipment manufacturers…

How has ITI Limited performed over the past two years? What have been its key achievements?

ITI Limited has reduced its net losses over the past two years. Our MoU rating has also improved; the rating for 2013-14 was the highest in the past 12 years. Despite limited demand from our major customers, ITI has been able to achieve a reasonable turnover due to the focus on diversification projects.

ITI has secured some key contracts in the past two years by participating in open tenders and competing with foreign equipment vendors. The company bagged two orders worth a total of Rs 21.11 billion from Bharat Sanchar Nigam Limited (BSNL) for laying optical fibre cable in two zones (out of seven) for the Indian defence ministry’s prestigious Network for Spectrum project. The field activity for it has already started and the project is planned for completion in 18 months.

Apart from this, ITI bagged an order for NGN C5 access equipment worth Rs 1.5 billion from BSNL during 2014-15. This turnkey project is being executed in collaboration with UTStarcom and involves the supply, installation and commissioning of NGN access equipment for the western and northern telecom regions of the country. Equipment worth Rs 500 million pertaining to Phase 1 of the project has already been supplied and the Phase 2 order worth Rs 1 billion is expected to be supplied in a couple of months.

ITI has also received a contract worth Rs 500 million from the Ministry of Defence to supply and install encryption equipment for the Digital Communication Network. This equipment has been developed by an in-house R&D team and manufactured by a division of the defence ministry. The prototype submitted by ITI to the army’s evaluation wing has been cleared for bulk production. The plant is currently gearing up for the production and supply of this equipment.

What are the new growth opportunities for telecom equipment manufacturers in the country?

The new growth opportunities for telecom equipment manufacturing in India have been made possible by government initiatives like the New Telecom Policy 2012, the New Policy on Electronics 2012, the Preferential Market Access Policy, Make in India, Digital India, the Smart Cities Project, the Offset Policy in the Defence Procurement Procedure, and the Defence Production Policy to encourage indigenous manufacturing of defence products.

What are your views regarding the Make in India initiative?

In line with the Make in India programme, the company is in the process of identifying the right technology partners for taking up manufacturing on a large scale. Interest has been invited from Indian and global equipment players and PSUs to collaborate in manufacturing products in the fields of telecom, defence and electronics.

What are the steps being taken by ITI in order to compete with foreign vendors in the Indian market?

ITI is taking some measures to remain competitive in the industry by upgrading its manufacturing infrastructure, strengthening R&D, and acquiring new technologies. While it is important to upgrade manufacturing facilities for meeting market requirements, R&D investments support the development of in-house technology products related to next-generation encryption equipment, mainly for defence requirements. Efforts to acquire major technologies are being carried out through joint ventures and technical tie-ups with the Centre for Development of Telematics, the Defence Research and Development Organisation, the Centre for Development of Advanced Computing, and major Indian design agencies.

What are the issues and challenges being faced by telecom equipment manufacturers in India?

At present, telecom equipment manufacturers are facing several challenges. The lack of a fully developed ecosystem or supply chain for electronics and telecom equipment manufacturing (like the unavailability of semiconductor fabrication and many other types of electronic devices) are major hurdles that are holding back the domestic manufacturing industry. Along with this, the industry is suffering because of the unavailability of most kinds of capital machinery required for electronics and telecom equipment manufacturing. India has also been unable to develop indigenous technology for telecom equipment due to its high financing costs vis-à-vis that in other countries.

What measures can be taken to address these issues?

The preference for domestically manufactured electronics products (DMEP) under the Preferential Market Access Policy can be extended with a price preference within definite limits. The prices of DMEP, which are higher, will be considered for supplies. The financial difference can be compensated to DMEP by some kind of incentive, tax reimbursement or any other means that is beneficial to the government as well as to domestic players. DMEP’s bill of materials cost is higher as the tax on these components is higher. If the tax on imported electronics components is reduced drastically compared to the tax on finished imported electronics goods, it can give a boost to locally manufactured equipment.

There also needs to be an ecosystem for electronics manufacturing in the country. This can be accomplished by setting up a fabrication manufacturing facility, and designing and testing semiconductor components. Apart from this, the telecom/electronics manufacturing sector needs to be given the status of an infrastructure sector, as it is expected to have a turnover of $400 billion by 2020. Going forward, innovation and R&D need to be promoted to facilitate domestic manufacturing.

What is some of the next-generation network equipment that ITI has already introduced or plans to launch?

The technologies that ITI is focusing on include the gigabit passive optical network, new-generation networks – switching network, long term evolution, software defined radio, gigabit Ethernet encryptors, Wi-Fi networks, data centres and smart cards.

How does ITI Limited intend to use the funds allocated to it in the latest Union Budget?

In February 2014, the Cabinet Committee on Economic Affairs had approved a revival package for ITI worth Rs 41.56 billion. Of this, Rs 4.6 billion was allocated in the 2014-15 budget for capex. From this, Rs 1.92 billion was given to ITI for upgrading the infrastructure at its manufacturing plants. In the 2015-16 budget, Rs 1.5 billion has been allocated for salary payments and Rs 500 million as capex for 2015-16 for defence projects and a project for the Vikram Sarabhai Space Centre.

The company plans to utilise the revival package for:

What are ITI Limited’s future plans?