A Great Start on Wi-Fi Reforms

The 5 GHz regulations are exactly what we needed for a start. But we need a lot more, and not only from the DoT.

Shyam Ponappa    |   November 1, 2018

This item of detail is almost like magic. The MoC has done something splendid regarding Wi-Fi. Its 5 GHz spectrum regulations have everything we could wish for. But it’s a first step — only the first. Much more is needed to reap the benefits.

To put it in context, we now have a policy that enables effective broadband Wi-Fi hotspots, and profound changes in connectivity are feasible for the last mile in India, as in other countries. A high proportion of smartphone traffic abroad is over Wi-Fi. In the recent past, in the US it was around 70-75 per cent, while Japan was around 83 per cent, and Germany about 87 per cent.1 Traffic is offloaded from licensed spectrum, freeing it up for re-use. We have 605 MHz added in the 5 GHz band to the existing 380 MHz for Wi-Fi, and a removal of restrictions on external usage as in the US, so Wi-Fi will have much greater capacity.

The ramifications, however, are ironic. These regulations could lead to a surge in economic activity, and consequent benefits from connectivity. But this will increase imports, which are already overboard on account of oil prices and technology imports, an aspect discussed later in this article.

The increased activities in network installation and ensuing benefits will vary depending on supporting ecosystems of policies and practices. This applies within the communications sector as also at points of interface with other sectors, such as electricity and finance. To illustrate, in communications, consider an unlicensed band in most markets including the US, the UK, and Europe, namely the 60 GHz V-band. Whereas the Federal Communications Commission (FCC) in the US delicensed 14 GHz in this band for “wireless fibre” called WiGig, India hasn’t done so. Instead, another WPC2 notification in October delicensed only 500 MHz (61-61.5 GHz) at very low power. Devices abroad that use this band for 400-metre and 700-metre connections have channels of 2,000-2,500 MHz acting as wireless fibre links over short distances. These can’t be used here. Short-distance connections to Wi-Fi and wired networks in offices and residential, commercial and industrial complexes will need fibre or cable.

This policy link is missing, perhaps because operators oppose it. The user network traffic bypasses operators to the extent that Wireless Internet Service Providers (ISPs) and other entrepreneurs set them up and collect charges, whereas operators have paid huge premiums for the spectrum required earlier. A solution that enables commercial deployment by licensed operators would solve this problem, although ISPs would have to go through operators as before. Another alternative could be to have unlicensed access to public wireless networks owned and operated by BSNL/BharatNet/CSC, or by operator consortiums, on payment of service charges by operators and users.

Equally essential are aspects of ecosystems that are adjuncts from sectors such as power supplies, finances, and local manufacturing, for substantial and stable growth. So for convergence resulting in significant benefits, these are the kinds of problems that will have to be resolved:

• The power situation, with a conscious shift towards more distributed, renewable (solar and, in some areas, wind) energy, with changes comparable to Wi-Fi/5 GHz in policies and practices. 
• The financial system and non-performing assets (NPAs), including the steady revival of infrastructure projects. While dealing resolutely with malfeasance and fraud, nursing and reviving good infrastructure underlying the NPAs is crucial. A sorry plight, but if revivable infrastructure projects are allowed to fail, they end up as unproductive, wasted assets (a repeat of Dabhol), with negative multiplier effects. 
• The imperative for the domestic manufacture of equipment to reduce imports. This is going to be an escalating compulsion because of our market size, unless we develop solutions that help balance imports, such as a compelling tourism strategy (but just think of the complexity of the ecosystem elements that need improvement) or communications equipment exports (equally complex).

Meanwhile, we are on a path committed to curbing demand to contain the deficit: Battening the hatches, tightening belts, and waiting for oil prices to fall /exports to rise, keeping a wary eye on the current account deficit (CAD) because of imports, and inflation. This pressure may persist for months, possibly even years, restricting growth. Aren’t there feasible, growth-oriented initiatives, tempered by not exceeding reasonable bounds, including the CAD?

The data on the CAD, capital formation, FPI inflows, and FDI are in the chart below.

CA: https://rbi.org.in/scripts/PublicationsView.aspx?id=18603 

GFCF: https://data.gov.in/sites/default/files/datafile/Table3.10.xls

FPI Inflows: https://rbi.org.in/scripts/PublicationsView.aspx?id=13729

https://rbi.org.in/scripts/PublicationsView.aspx?id=18599

FDI Equity Inflows: http://dipp.nic.in/sites/default/files/FDI_FactSheet_29June2018.pdf

A study of data from 2001 to 2016 of how the capital account and its components, the current account, and gross fixed capital formation affect each other concluded that sustained capital formation requires more foreign direct investment (FDI) relative to other flows.3 FDI was found to have an indirect effect on capital formation, which was found to affect the current account. Debt portfolio flows and nonresident deposits financed the current account, but did not contribute directly to capital formation.

In Indonesia, a study of how the CAD affects exchange rates found that when it exceeds about 2 per cent of the GDP, the exchange rate depreciates over 12 per cent after a four-month lag.4 Tracking such relationships in India would be useful for policy making.

Meanwhile, India’s large growth sectors are plagued by unsustainable economics. For sustained growth, they have to be organised more rationally, to generate profits for productive enterprises. Promising domestic sectors include electricity, communications, and aviation. Bypass strategies as in software and IT-enabled services won’t work, because these services are for domestic markets. They must generate profits without labour arbitrage, while balancing imports and exports, unless growth continues to attract foreign capital. Genuine reform as for Wi-Fi and 5 GHz spectrum with collaboration involving the private sector and governments modelled on the automotive sector are a possible way forward.

Shyam (no space) Ponappa at gmail dot com

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1: Claus Hetting, October 2018: https://wifinowevents.com/news-and-blog/japan-83-of-smartphone-traffic-runs-on-wi-fi/; https://wifinowevents.com/news-and-blog/germany-wi-fi-carries-87-of-smartphone-traffic/

2. WPC: Wireless Planning and Coordination Wing, Department of Telecommunications

https://dot.gov.in/sites/default/files/License%20Exemption%20in%205%20GHz%20G_S_R_1048%28E%29%20dated%2022nd%20October%2C%202018_0.pdf?download=1

3. Ashima Goyal & Vaishnavi Sharma, September 2017: http://www.igidr.ac.in/pdf/publication/WP-2017-016.pdf

4. Nugroho et al, January 2014: http://bmeb-bi.org/index.php/BEMP/article/download/445/420/

Matching Realities and Aspirations

Leaving aside fixing the 'mountains' such as land acquisition, NPAs, etc., here are some thoughts on systemic focus and action.

Shyam Ponappa    |   February 1, 2018

There’s an upbeat sense from the annual Economic Survey, and indicators such as soaring stocks and official statements.Yet, the ground realities don’t match because of gritty facts such as not being able to pay electronic tolls on a national highway near Delhi though the Bharatiya Janata Party (BJP) controls local administration1, Korean steel giant Posco abandoning a huge investment last year after struggling for over a decade, two public sector divestments, Bharat Aluminium Company and Hindustan Zinc, mired in difficulties2, or the hobbling state of services such as electricity and telecommunications despite short-term consumer benefits from lower prices, and so on. Another aspect is that so many college graduates, including engineers, law students and MBAs, compete for low-end government jobs such as peons in state governments. Clearly, something beyond talkfests and episodic discussions is needed. Leaving aside fixing the “mountains” — the land acquisition act, non-performing assets (NPAs), high component taxes — here are some thoughts on systemic focus and action.
Fix infrastructureWith rare exceptions, our governments do not appear to recognise a clear priority to fix infrastructural deficiencies. After national security and maintaining law and order, correcting critical deficiencies of infrastructure in all its forms needs to be an all-out priority. This is a basic requirement for citizens to function effectively and live well. Without infrastructure one cannot function anywhere near full capacity, because of having to spend time, energy and resources dealing with problems of living and hygiene arising from the non-availability of adequate water and sanitation, inefficient travel and logistics for employment, education or health care, communications, dysfunctional equipment because of power shortages, and so on.Instead, some misconceptions in policies and practices appear to be broadly accepted as driving factors not only in the government, but also to some extent in the public perception. One is that all foreign direct investment (FDI) is a panacea for our ills and aspirations. The second is the idea that for services such as water, electricity and communications, the public interest is best served by the lowest consumer prices for those who get such services, regardless of sustainability. Issues such as access to services for half the population living outside urban areas, high and consistent quality, sustainability, and minimising environmental impact appear to be less important criteria.

The Panacea of FDI?There’s no question about the need for foreign investment, but uncontrolled FDI, particularly at our stage of development, is inadvisable. One wonders where these forms of the erstwhile East India Company and/or winner-take-all might lead. And does it matter, as long as consumers enjoy good living, defined as access to material comforts at low prices? To see why it does matter, consider these parodied scenarios, with apologies to Jonathan Swift’s satirical A Modest Proposal3.A Modest Proposal for 100% FDI — A ParodyImagine how well all consumers could do, this time without leaving the other half out, if we invite the likes of (indicative list, in alphabetic order) Amazon, Facebook, Google, and Microsoft (with guarantees of compensation if there are sudden policy reversals, which we are prone to) to use all unsold and unused spectrum to provide connectivity and digital services pronto. They could put in so much investment to get to year five on day one a couple of years or so out, even Reliance Jio might pale.Don’t want Americans? Why not invite the Chinese and Huawei? We might get even better deals in digital services from the world leader in 4G and beyond.

Not to mention the attendant benefits from associated companies to keep consumers happy with smartphones, air conditioners, refrigerators, air purifiers, TV sets, cars, two-wheelers, and so on. There will also be power plants, aircraft, and trains, fixing all three sectors with one swipe. Some impediments would have to be removed of course, such as allowing power plants to come up, electricity lines to be laid out, spectrum to be used, land acquired, changes in labour laws, and so on. As for employment, there could be plenty of local assembly, manufacturing and distribution from all of the above, provided we willingly submit to some regimentation in our lives.

Alternative: Fix The Basics & Do It Ourselves

We have to fix the basics to help ourselves and make FDI succeed in our interests. We need priorities in objectives, as everything cannot have the highest priority. Even more difficult is getting experts and practitioners to work out detailed process plans, evaluating alternatives with realistic simulations, and so on. It takes time, energy, understanding and competence, and patience, to get beyond seat-of-pants discussions. Apply all these from a systems perspective, map the distilled ideas to action plans for each set of interrelated processes, and the upshot could be those process plans. We may get end-to-end strategies leading to convergent results to improve our infrastructure, which will enable agricultural and manufacturing production, services, and trade, with resulting jobs, while limiting negative environmental impact.Goals such as increasing jobs and farm income are desirable. To get on a higher long-term growth trajectory beyond a cyclical recovery, in addition to skilling, there need to be initiatives and investments that fit with the circumstances. An excellent example is the Automotive Mission Plan 2006-2016, now in its second 10-year cycle, which resulted in India becoming a preferred automobile assembly location with 32 million jobs in FY16. Similar approaches could be worked out for connectivity, electricity, and the rest, that address the needs/opportunities/markets, the products/services, how delivery will be organised, what the resources are and where they will be sourced from, how they will be organised and when, i.e., the detailed strategy, process plans and flow charts.Also, effective corporate practices such as facilitation for catalysing group decisions could be used if they are not already, to help administrators, experts, and practitioners arrive at sound, practical decisions.4 Another area is simulation and modelling of alternatives and scenarios. A third is overall strategy.

These steps will help improve our ability to achieve our aspirations.

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Shyam (no space) Ponappa at gmail dot com

1. ‘India’s road to digital highway’, Nivedita Mookerji, Business Standard: http://www.business-standard.com/article/opinion/india-s-road-to-digital-highway-118012401544_1.html

2. ‘India as a ‘business partner’, Kanika Datta, Business Standard: http://www.business-standard.com/article/opinion/india-as-a-business-partner-118012401599_1.html

3. https://en.wikipedia.org/wiki/A_Modest_Proposal;https://andromeda.rutgers.edu/~jlynch/Texts/modest.html4. https://www.centreforfacilitation.co.uk/files/public/What%20is%20process%20facilitation.pdf

Essential Services as Industrial Policy

Get the basics right, then support all the way through to market.

Shyam Ponappa    |   November 3, 2016

Looking for a compressor-driven tyre pump in New Delhi, the sort that plugs into a car’s 12-volt socket, there were many choices. There were products by Michelin and Goodyear, mid-range products from Taiwan and Korea, and low-end products from China. None were made in India. 

Why is an engineered product like this not made here? Is the market not large enough, or is there too much competition? Or does this epitomise India’s manufacturing problem?  This set one wondering about the factors and impediments that producers and suppliers contend with, whether for products from the manufacturing or farm sectors, or for delivering services.

There are the taxes, the slowness in clearances that makes for difficulties and delays while increasing costs, the shortages, as in unreliable essential services of electricity supply, water, sewerage and waste handling, communications and logistics. Then, there are the issues of access to funds, their cost, the lack of skilled people, and access to markets. What corrective steps are needed most? 

Our fundamental need is for industrial policy to focus on providing essential services, through both policy facilitation and effective delivery. These essential services are critical for product or service delivery.  In addition, manufacturing also requires skills, discipline, financing, and access to markets including government buying.

A basic question is the legitimacy of any industrial policy, even before addressing sectors, products or methods of organisation.  In this context, there are the ideological biases that skew perceptions, influenced by what is topical or accepted as customary at a given time, such as the socialistic preoccupations of the 1950s, the market supremacists until the financial collapse of 2008, and the partial correction thereafter, recognising the role of governments in setting enabling policies.

Do industrial policies really work, or do they merely serve to create more problems?  For example, an article by the chief economist of the World Bank for Middle East and North Africa, Shanta Devarajan, offers three reasons why industrial policies fail:

- Distortions such as labour regulations, energy subsidies, or tax breaks, as for example in India that resulted in resource allocation to IT services and away from manufacturing, or in aggravating problems of pollution because of cheap diesel.

- Political capture by lobbies or crony capitalism.

- Efforts to provide a comparative advantage to sectors, and not to individual entities (picking winners), which can fail because every sector can have both successes and failures.  

While the first two are valid, the third is not necessarily true. While firms can fail despite incentives, sector initiatives are perhaps precisely what are required. This is because conducive policies do not guarantee success, but can provide preferential conditions, which is presumably the aim of sector- specific industrial policy. What India needs more of in this is support to market.

A compelling financial consideration for all manufacturing is the short-term profitability of service activities, or of trading with minimal manufacturing.  Typically, these give quicker returns, because of the lead time for product development and commercialisation in manufacturing. The latter requires scale, access to capital, and an ecosystem of complementary producers. These are difficult to come by, effectively skewing resources towards trading and limited manufacturing with a reliance on imports.

Yet, domestic manufacturing’s declining share is unsettling for a large, growing market with high energy imports. Other unsettling factors include the influence of prevailing sentiments and political philosophies, e.g. minimum governance, and how they affect developments and their trajectories in these areas.

Open questions

Some government initiatives leave one wondering how they advance the public interest. Examples are:

- Ignoring support for early-stage and upcoming entities, their order books and delivery capability, while organising start-up initiatives as “events” for college students. India has early-stage capital for service-oriented start-ups such as software and IT-enabled services, aggregators, and so on, but not for  product development or manufacturing. Likewise, there’s scant long-term funding available for manufacturing or getting local R&D to market. The most difficult stage is transforming successful R&D in the laboratory to field applications and commercialisation. This is where support is not available, and is  sorely needed.

- Attempts to attract foreign direct investment (FDI) in manufacturing, despite the record of FDI.  According to a study by the Institute for Studies in Industrial Development (ISID) of 309 companies in five sectors with FDI of at least 10 per cent from 1993 to 2013, net earnings from manufacturing were  negative for most of the period (see chart).

Source: “Foreign Exchange Use Pattern of Manufacturing”, Swati Verma, ISID, August 2015:

http://111.93.33.222/pdf/WP183.pdf

- In electronics and information technology, despite supportive policies on paper, local manufacturers show little traction in domestic sales. A recent negative development is the reported consideration of foreign-owned entities that assure FDI of $1 billion over the next five years as “Deemed Domestic Manufacturers” regardless of their imports. This negates the very principle of domestic manufacturing and reliance on local IPR.  More important, it jeopardises the prospects of network investments, because of high import requirements in contention with energy.

Essential services and select sectors

All governments adopt industrial policies, some with a focus on infrastructure and regulations, with a lesser degree of market intervention, and others with more of the latter. Picking any sector or activity for constructive attention automatically favours it against others, whether it is cleaning the Ganga, start-ups, favouring IT services or high-technology manufacturing, or providing electricity, communications, and other essential services. This highlights the importance of essential services delivery as the most basic and critical need, because it provides an enabling platform. However, achieving essential services delivery requires action cutting across departmental boundaries, contrary to prevailing practice, in the central government, followed by all government agencies including in the states.  A separate step is to pick areas like high technology and defence manufacturing for special promotion through to market.

These distinct thrusts, essential services, and backing select areas all the way to market, will likely improve outcomes premised on policy intent.

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Shyam (no-space) Ponappa at gmail dot com

1: https://www.brookings.edu/blog/future-development/2016/01/14/three-reasons-why-industrial-policy-fails/

FDI Needs a Strategy

India needs to maximise public interest from FDI in sectoral investments

Shyam Ponappa / Feb 02, 2012

The logic of strategic investment, stumbled upon for airlines after years of confusion, should drive policy on foreign direct investment (FDI). What a relief that FDI in airlines was cleared, somehow, at 49 per cent. This is undoubtedly positive for India’s aviation sector and consumers, i.e., in the public interest. Musing on the latter, there are aspects of FDI that point to the need for a nuanced strategy because of the economic and technological effects on domestic stakeholders.


FDI can be beneficial overall in many sectors as a source of capital, technology, systems and processes, and experienced human resources and organisation. A strategic approach could, however, lead to better outcomes for Indian stakeholders, through building local capacity and profiting from it.


Imagine if the airlines decision had happened 11 years ago. Arguably, Air India could have, once again, become a leading global airline in alliance with Singapore Airlines and the Tata group. Of course, it would have needed much more than just the investment decision to succeed.


Hundred per cent FDI: benefits and detriments


It is not a simple matter of the percentage of foreign holding. At one extreme are 100 per cent foreign-owned companies. There are several such entities in India, in sectors as diverse as pharmaceuticals, automobiles, chemicals and construction materials — or financial, IT and industrial services. Among these, Texas Instruments (TI) was a pioneer among technology companies. TI set up a subsidiary over 25 years ago in Bangalore, employing local recruits in research and design, with considerable success. This model has been replicated by Motorola, GE, Intel, Samsung, Microsoft and so on.


In terms of local benefits, these companies bring technology and access to markets, systems and execution capability and, most important, access to capital. The pioneers were initially stand-alone entities, with little effect on the local environment, other than excellent employment opportunities for qualified local talent. Over time, accretion led to critical mass as well as the emergence of local ecosystems around these enterprises, spawning new companies built on similar principles and culture. These were developed by talented people from the original enterprises, and others who were attracted to this environment of knowledge-based innovation. This makes Bangalore what it is, despite its inadequate infrastructure.


Similar effects are visible among automobile manufacturing clusters, e.g., around Chennai and in the National Capital Region. Suzuki’s joint venture with Maruti created an ecosystem of component suppliers near Delhi. Hyundai and Ford brought along their ecosystem of suppliers and set up in the vicinity of Chennai. Similar developments occurred elsewhere, as in the automotive cluster in Western India, with Tata Motors, Mahindra, Mercedes, and more recently, Volkswagen.


Consumers benefited immensely, as these enterprises extended the range of available products and services, and raised quality. They also provided challenging and remunerative employment to qualified local recruits.
Similar benefits show in areas like technology and R&D. Companies like GE address a broad range of technologies and products in India, such as wind turbines or materials research. The scope of activities is vast compared with the kind of product and material innovation prior to their entry. Subsidiaries of IBM, Microsoft and Ericsson are doing equally remarkable work in IT.


Some local benefits clearly accrue from the quality and range of innovation arising from the employment of high-calibre talent, a mix of external human resources together with opportunities for local recruits, backed by the corporate strengths of technology, capital, systems and market access. The quality of work content, therefore, is another local benefit from the entry of these companies.

However, a startling innovation is Huawei’s setting up of telecommunications Network Operating Centres (NOCs) in India. Huawei first set up an NOC in Gurgaon near Delhi in 2009 to cater to the Indian market. Another centre set up in Bangalore in 2011 now offers managed services to global networks. This is an example of leveraging local resources in a way Indian companies cannot, despite pioneering managed services from offshore — because they do not have Huawei’s combination of technology, manufacturing and financial capacity (with state backing).

The negatives are that local companies are often at a disadvantage when competing with well-known, well-funded multinationals for market share and for talent. Dominant multinationals can smother nascent local manufacturers and service providers who do not have their capital, technology, design, or human resource strengths. However, multinationals have greatly improved quality as evidenced by automobiles and consumer goods. In all these cases, did India have a strategy, or was it happenstance?

Listed foreign investments


Another type of foreign-owned company is listed on domestic stock exchanges and actively traded, with a broad retail ownership, such as Hindustan Unilever, Nestle, or the Procter & Gamble subsidiaries. The benefit to Indian stakeholders is that they get to share in the profits of these enterprises while sharing the risks, in contrast to the fully-owned subsidiaries in the automobile, pharmaceutical, or banking sectors. It is clearly in the local interest to require companies with strong prospects to allow participation in their profits (though WTO considerations might determine the idea’s feasibility). In other words, WTO permitting, fully-owned subsidiaries in booming sectors that profit from local markets or resources should be required to have listed public shares. Likewise, local participation in profits is lost if multinationals delist or increase their holdings.

Extended to profitable Indian companies, the implication is that profit participation is desirable for local stakeholders. From this perspective, there’s little reason for permitting dilution of local shareholdings, or an increase in foreign ownership to 74-100 per cent.

By the same token, the “deadweight loss” to social welfare (i.e., the public interest) through high taxes/fees on inputs and services needs to be reduced, as in the case of petroleum products, or radio frequency spectrum charges.

To conclude, a strategic approach to foreign investments should be applied to areas with high potential, such as aviation and telecommunications. Specifically, efforts should be made to emulate focused, convergent initiatives – as in Huawei’s development – through consistent long-term support for a manufacturing ecosystem integrated with R&D and managed services. Otherwise, India’s imports in these sectors will dwarf its current energy and defence imports. Opportunities for local participation through listing are desirable for a share of profits to be retained.




                                                                     shyamponappa at gmail dot com