India is one of the world's fastest-growing telecom markets. But local manufacturing meets very little of the demand. In 2011-12, India imported Rs 52,400 crore worth of telecom equipment; most estimates are that the figure in 2012-13 will match or even cross that number. Minister of State for Communications and Information Technology Milind Deora told the Lok Sabha in the last winter session of Parliament that "wireless equipment with sufficient value addition are not being manufactured in the country". At one level this calls for adequate policy measures to encourage more investment in building domestic capacity for manufacturing telecom infrastructure equipment. But at another level this also means that, typically, the Indian telecom backbone is made in China - although Western companies such as Cisco also compete, state-backed Chinese firms, especially Huawei and ZTE, tend to have more attractive prices. The government has long feared that this has dual implications for India's electronic manufacturing and national security. Now, it has been reported that the National Security Council (NSC) has specifically warned that imports from China, which are over half of imports in the relevant category of telecom equipment, pose significant national security hazards.
Part of the NSC's justification for this claim is that Huawei and ZTE have links to Programme 863 of the Chinese government, which was administered by the People's Liberation Army (PLA). Programme 863 is not news; it was set up in 1986, as part of China's seventh five-year plan, to beef up the country's high-tech industry. The PLA is a major player in China's tech economy, but that fact is not in and of itself suspicious. However, it is certainly true that allowing crucial, semi-permanent infrastructure to be wholly built in China carries significant risks. Nor is India the only country to ring alarm bells. Australia's government has disqualified Huawei from building that country's broadband network - a decision taken almost immediately after a visit from US President Barack Obama, during which the issue was reportedly discussed. The US itself has effectively blocked off Huawei from crucial telecom infrastructure contracts. The company is so worried that its reclusive founder last week gave his first media interview in 26 years.
Part of the problem for India is that the question of national security is not the only one in play here. Cellular operators, for example, have lobbied hard to ensure that Chinese equipment is available to them - since the cost of their machinery directly affects their bottom line. They have even lobbied the government to classify Huawei as a "domestic manufacturer" in order to escape any restrictions that might come into force. Of course, local manufacturers lobby for import restrictions - and they have received a sympathetic hearing from several in government. But India cannot merely impose trade restrictions without a clear national security case, given the World Trade Organisation's prickliness on the subject. Indeed, US companies are up in arms about a possible attempt to evaluate telecom imports for security aspects, though it is clearly not targeted at them.
The government, of course, cannot afford to ignore security reasons while taking this decision. So far, it appears that the consensus that is being built is to beef up India's pathetically inadequate facilities for testing the equipment for spyware and vulnerability that could be exploited at a time of conflict. The truth is that simply isn't enough - no threat will be so unsubtle. Complex telecom equipment needs maintenance and firmware upgrades from the manufacturer - and each such update is not going to be checked. A certain degree of wariness about dependence on state-backed Chinese companies seems justified.
