When a telecom company is asked to stop operations on security grounds, it’s time to sit up and introspect, more so if the company in question has a case against the government in the Supreme Court. In the STel case, the government appealed to the apex court after a division bench of the Delhi High Court upheld an earlier judgment in favour of STel, which had in 2008 filed a case against the government’s arbitrary policy on granting mobile phone licences. The issue of asking STel to stop operations, the way it has been reported in the press, may have to do with the company using Chinese equipment — an earlier government decision had said Chinese mobile phone equipment can’t be used in certain states. While the security set-up has traditionally been against the use of Chinese equipment in several industries such as power, we need to worry about whether the government is mixing up the issue of security with that of protection of Indian industry.
There may be good reasons for a “strategic industrial policy” that builds domestic manufacturing capabilities without returning to the now-defunct Licence-Permit Raj. However, it is worrying to see national security considerations get into the business of helping winners, even if not picking them. Why should the National Security Council secretariat have a view on foreign investment, or why should it take a call on whether certain industries, like pharmaceuticals, should be considered “sensitive” in the sense FDI in them could compromise national security? What is it about producing medicines or researching them that can involve national security? If the government has concerns like ensuring there is enough R&D on diseases of local mass interest — such as malaria and tuberculosis, for instance — this is best done by funding such research directly, rather than protecting firms that produce the required drugs.
As for the issue of protecting Indian industry, it is by no means clear that Chinese firms are getting market dominance in a very wide range of industries. How serious is the China scare? Several years ago, one heard of Chinese motorcycles overtaking Indian ones, but that threat didn’t quite materialise. Before that, the same fears were expressed about bicycles, but not too much happened there either. In any case, if Chinese firms are achieving their dominance in the areas they are through unfair means — the only condition under which it becomes a strategic matter that the NSC has the right to be worried about — this is a matter best dealt with separately. If, for instance, the fear is that the Chinese government is subsidising Chinese power equipment suppliers so as to destroy Indian competitors like Bhel and L&T, then the appropriate forum to deal with this is the anti-dumping mechanism. If the view is the undervalued yuan is helping Chinese manufacturers in an unfair manner, then, apart from the anti-dumping mechanism, there is the finance ministry and the import duty route that need to be used. In the past, the Bombay Club wrapped itself in the national flag in order to get protection for Indian industry — we have to ensure national security is not the new cover being used for the same purpose.