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Why India Should Not Outlaw Huawei

In hot pursuit of the tech cold war, the Trump administration has been warning adversaries and friends alike not to do business with Chinese telecom giant Huawei Technologies and to avoid its fifth-generation mobile network equipment.

In Asia, some of Washington’s partners, notably Japan and Australia, have succumbed to the pressure. Others have resisted so far, such as Singapore and South Korea.

India, which has yet to announce its decision, should reject the U.S.’s demands.

The U.S. claims that installing Huawei equipment in national networks represents a security threat. It risks creating a secret entrance for Beijing’s spies to infiltrate foreign communications systems.

But Washington has so far not offered any clear evidence of breaches of privacy or security. It asks to be taken on trust. New Delhi should not cooperate.

Cooperation would go against the sprit of the World Trade Organization’s rules on national treatment, which India backs strongly. New Delhi, as a decadeslong supporter of multinational institutions, should not betray the WTO at a time when it is under great pressure, not least from Washington.

Moreover, there are powerful economic reasons for including Huawei in India’s huge next-generation network investments. Debt-laden telecom majors such as Bharti Airtel and Vodafone Idea cannot afford to exclude the cheapest supplier as they plan to offer competitively-priced 5G mobile services to cost-conscious customers. This is a developing economy with many millions of poor people.

Also, banning Huawei might delay the 5G rollout as the other two competing suppliers, Nokia of Finland and Sweden’s Ericsson cannot match the scale and speed of the Chinese technology behemoth.

The 5G mobile network is reported to be ten times faster than current the fourth generation technology. 5G is set to pave the way for widespread adoption of the internet of things when many machines and appliances are connected to the web. It will also find wide-ranging uses in improving education and health care. Just as with basic mobile phones, the impact in a developing country like India, with limited existing infrastructure, can be even greater than in the industrialized world.

Huawei 5G network gear is not only advanced, it is 10-15% cheaper than Nokia and Ericsson. Moreover, the Chinese company offers tempting payment terms, including the option of low-cost deferred payment.

Besides, Huawei’s R&D center in Bangalore is its largest overseas R&D facility. It employs an estimated 5,000-plus Indian engineers. India’s telecom industry directly and indirectly employs 4 million workers. These jobs matter.

An intense price war, fueled by the entry of billionaire Mukesh Ambani’s Reliance Jio into the market, has put immense pressure on margins. With heavy debts, the industry badly wants lower taxes and low prices for the 5G spectrum auction that is soon coming.

However, facing tax shortfalls and pressure to contain the fiscal deficit amid slowing economic growth, the Modi government is quite unlikely to reduce taxes or sell spectrum cheap. The last thing the operators want is expensive equipment that would be a certainty if the government banned Huawei.

Moreover, Trump is proving anything but a reliable or predictable partner. He has ended India’s general trade preferences for goods shipped to the U.S., hitting Indian exporters at a vulnerable time. He demands that India stop buying Iranian oil, reject Russian offers to supply the high-tech S-400 Triumph anti-aircraft missile system, and stay out of the proposed 16-member Asia-Pacific trade pact — the Regional Comprehensive Economic Partnership — as its strongest participant is China.

Obliging the U.S. president on Huawei risks encouraging the other demands as he gears up for his 2020 reelection campaign. He may see India a soft target for a foreign policy tantrum.

Moreover, Trump can’t be trusted. His recent threat to Mexico to impose new import duties because of illegal border crossing comes only a couple of months after he concluded the renegotiation of the NAFTA economic pact with Mexico and Canada. Why spend time negotiating with officials if an agreement can later be changed at the stroke of a presidential tweet?

Fundamentally, with the U.S. turning protectionist and the EU struggling with slowing growth and the Brexit mess, India cannot afford to close its economic doors on China, the world second largest economy. This applies especially when India’s own economy is slowing.

Until now few countries have joined the Trump administration in boycotting Huawei. Not a single European country, not even the UK, is on fully on board. Clearly even close allies do not share the same level of concern about security as the Trump administration. They suspect that the U.S.’s concerns have probably more to do with its trade war and tech competition with China than old-fashioned security. And they don’t want the two issues mixed. India should take the same view.

Still, India should take potential cyber security and espionage threats seriously. It must tighten its rules for electronics and telecom equipment. It should set and enforce common security standards. It should apply them to domestic and foreign suppliers alike, including Chinese companies. It can even go a step further and apply special scrutiny to Huawei and insist on the kind of ‘no spy’ agreement that Huawei has offered some other states, including Germany and the U.K.

Such a pragmatic and flexible approach would serve India much better than an outright ban on Huawei.―Ritesh Kumar Singh is chief economist of Indonomics Consulting and a former assistant director of the Finance Commission of India, Nikkei Asian Review

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