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India to ban China’s Huawei over security fears – Impact of ban on Indian Telecom Sector explained

India to ban China’s Huawei over security fears – Impact of ban on Indian Telecom Sector explained

Relevance:

  • GS 2 || International Relations || India & its Neighbours || China

Why in the news?

There is growing speculation in the government corridors that India is most likely to ban China’s Huawei from rolling out any project for implementation of 5G services .

What is 5G and where India stands?

  • 5G is the 5th generation mobile network. It is a new global wireless standard after 1G, 2G, 3G, and 4G networks.
  • 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.
  • 5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users.

Position of India on 5G services vis-a-vis the world

  • More than governments, global telecom companies have started building 5G networks and rolling it out to their customers on a trial basis.
  • In countries like the US, companies such as AT&T, T-mobile, and Verizon have taken the lead when it comes to rolling out commercial 5G for their users.
  • The situation in India is opposite, except a company Reliance Jio, most of Indian telecom companies are struggling with challenges such as lack of flow of cash, adequate capital, lack of indigenisation etc.
  • China had already started a 5G trial in 2018 itself and has now started rolling out commercial 5G services.
  • According to a Parliamentary panel report, the government expects 5G services to roll out by early 2022.

What is the Huawei dispute?

  • Huawei was founded in 1987 in Shenzhen, southern China, by Ren Zhengfei, a former army officer.
  • Huawei is the world’s second-largest smartphone supplier after Samsung, with 18% of the market.
  • The entire dispute on Huawei’s role in 5G services emerges from the trust deficit between the Communist Party of China (CCP) and the West countries.
  • According to the USA, Huawei could be used by China for spying, via its 5G equipment. It points to Mr Ren’s military background and Huawei’s role in communications networks to argue it represents a security risk.
  • Washington has banned US firms from doing business with Huawei (for example, designing and producing chips) and wants its allies to ban it from their 5G networks. Australia, Japan and New Zealand have joined the US.
  • There were also allegations against the CFO of Huawei related to the financial fraud. Canada had arrested Meng Wanzhou, the daughter of Huawei’s founder and the company’s CFO at Vancouver’s airport in late 2018. The U.S. wanted her extradited to face fraud charges which infuriated China.

India’s stand on Huawei dispute:

  • India’s attitude towards the Chinese company Huawei has been measured and well calculated.
  • Despite enormous US pressure to ban the company from any 5G trial, India had allowed the company to participate in the trail rounds.
  • However, after the trail the relations between India and China deteriorated very fast. India had earlier banned more than two hundred Chinese apps citing the reasons of National security.
  • India also changed its FDI rules from preventing Chinese companies from taking any substantial decision making powers in the domestic companies.
  • Now, India is most likely to sideline Huawei from 5G services on mainly national security ground.

Rationale behind ban on Huawei:

  • Security concerns : Under China’s 2017 National Intelligence Law, Huawei, like all Chinese companies are legally required to conduct intelligence work on behalf of the Chinese government. This has made India wary of allowing Huawei to roll out 5G infrastructure.
  • Negating any economic ground for Chinese tech companies: The Chinese telecom already has an incredibly small share in the Indian smartphone market, for example; it is utterly outcompeted by the likes of Samsung (based in South Korea). Gaining a foothold in 5G technology would therefore be a financial coup for the company.
  • Increasing hostility: China has been hostile to not only on borders, but also at several issues including India’s demand for permanent seat at UNSC, access to NSG membership, increasing surveillance in Indian Ocean waters etc. China has also been providing increasing arms and ammunition to Pakistan.
  • National sentiment: Since the Ladakh incursion by Chinese troops and death of 20 Indian soldiers following midnight clash between Indian and Chinese forces, the national sentiment is heavily against providing new business to Chinese companies. There’s also surging tech-nationalism in the country.
  • The Quadrilateral alignment: India has been proactive in forming Quad agreement with three other countries namely, the US, Japan, and Australia to counter Chinese influence in Asia-pacific. In such a scenario, where all three countries did not allow Huawei for 5G infrastructure implementation, India could not be out of the league by doing the opposite.

Impacts on India:

  • Escalation of Economic cost of rolling out 5G: Chinese companies such as Huawei and ZTE are much cheaper as compared to other countries. Now if they are sidelined, the economic cost of the 5G services may go up in significant manner.
  • Delay in implementation of 5G services: If the Chinese companies are prohibited from all 5G services projects, there can be delay in fully implementation of the 5G services.
  • Already compromised security: Huawei gets most of its revenue in India from the 4G network equipment segment, where two of the country’s largest telecom firms, Bharti Airtel and Vodafone Idea, are its clients. Thus, India’s security is already compromised in Chinese hands.
  • In the interests of the overall telecommunication sector: Huawei, with its low prices, domestic investments, and long-term repayment schemes, made a mark in the telecom sector. The Indian telecom industry needs players like Huawei to bail it out of the present overwhelming dominance by Reliance Jio which has almost killed competition in the sector.
  • Switching is not easy: Switching to other options will be a challenge, especially financially, as networks are already facing problems due to AGR dues. Companies like Airtel, Idea etc. are in huge debt because of large AGR due to the government.
  • Escalation in China-sponsored cyber attacks: The Chinese State may launch severe intensive cyber attacks on Indian critical facilities as retaliatory measures for their economic losses.

Way forward:

  • If India goes ahead with the decision to sideline the giant Chinese company, it has to bear the economic and strategic fall out of this sensitive decision.
  • Indian telecom companies need to be bailed out by the government as they are facing acute shortage of fund flow and capital requirements.
  • India also needs to partner with western countries such as Sweden’s Ericsson and Finland’s Nokia.
  • Indian telecom companies have to invest heavily in high quality indigenised infrastructure so that the transition between the 4G and 5G remain smooth for the consumers.
  • Meanwhile, India must also be prepared for the arrival of 6G, which is likely to replace 5G within 15 years.

Model Mains Question:

  1. Give a brief account of cost-benefit analysis of the decision to sideline giant Chinese companies such as Huawei and ZTE from 5G services rolling out projects in India.