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India in 2014: Ready to Bounce Back

When Huawei and ZTE attracted the suspicion of India’s Research and Analysis Wing (RAW) intelligence agency, swift and decisive action was taken against the Chinese telecoms equipment makers.

“Huawei Technologies is known to have links with the People’s Liberation Army (PLA) and the ministry of state security of China,” RAW wrote to the Indian Department of Telecommunications (DoT).

Telecoms equipment and other embedded systems can be equipped with security weaknesses designed to allow its manufacturer or its government to gain remote access, tap data and perform other tasks that are not part of the products’ public specifications.

The perceived attendant risk is that should the Chinese government become peeved with the West, it could send a kill command to the equipment made by Huawei and other Chinese manufacturers. This could seriously damage the economy or worse.

The Indian government set up a testing lab at IISc, Bangalore where all such equipment is now scrutinised. The two Chinese firms were subsequently banned from tendering to supply national infrastructure product after it was judged they posed a risk of eavesdropping or cyber-warfare.

By contrast, the UK (which shares the same intelligence) has continued to allow Huawei to install its equipment on its public broadband networks. The British government may be nervous of upsetting Huawei, which is investing £1.23bn (US$2bn) in the UK over the next five years.

Compare that with the fact that Huawei has invested for 12 years in India and employs 6,000 Indians in research and development. The fact that India can afford to assert itself speaks volumes, perhaps, about the relative strength of its technology future.

“Huawei’s stake in India is a drop in the ocean compared to the rest of the money being invested in its technology industry,” says security expert Philip Lieberman, CEO of Lieberman Software Corporation.

“The number of Indians employed by US manufacturers is enormous. The US and other Western countries have provided significant India employment and millions of jobs. China will not provide them as it’s a competitor.”

The irony is that most internet equipment manufacturers (who are predominantly US-headquartered) produce their routers, switches and other kit in China already. “Perhaps the Indian government was pressed to reject a Chinese competitor to their largest employers,” says Lieberman.

The logic of India’s ban on suspected cyber-snoopers will help maintain confidence in its outsourcing industry too. Any Western company that outsources its development and customer service to India, via internet connected systems, would think twice about the arrangement if sensitive material passes through questionable gateways. Should Huawei’s products intercept traffic and/or cause outages to achieve the objectives of the government of China, it would damage the business between Indian commercial giants and their customers.

The outsourcing market is vital as India is currently in a challenging economic environment.

“Poor policy, delayed reforms, the free fall of the rupee against major currencies, multibillion-dollar scams, and political gridlock are all negatively affecting the country’s growth,” says Forrester analyst Sudhanshu Bhandari.

That growth will ultimately come from new developments rather than the increasingly competitive outsourcing market, Bhandari says.

The IT service economy will continue to be a staple, however. According to India’s National Association of Software and Services Companies (NASSCOM), call centres, business process outsourcing and data-entry contributed $100bn to the economy last year. The software sector, which contributed US$80bn, according to NASSCOM, is about to step out of its shadow next year, as a new startup scene continues to mature.

While Britain’s online retailers have conceded their home markets to Amazon and eBay, India’s startup retailers are determined to fight their corner. Flipkart, India’s favourite online retailer, recently raised $200m from its existing investors to fund development and expansion. Investors, including South African internet giant Naspers, private-equity firms Accel Partners and Tiger Global, and San Francisco-based Iconiq Capital, value the firm at $1.5 billion. Forrester Research predicts the Indian e-commerce market will grow from $1.6bn in 2012 to $8.8bn by 2016 and Flipkart aims to own most of it.

Meanwhile, Bharti SoftBank (BSB) is bankrolling a number of new startups. As a joint venture between Bharti Enterprises, the owner of the world’s biggest mobile operators (Bharti) and SoftBank, the Japanese telecoms giant, the enterprise has considerable clout.

One of the fledgling companies that it is incubating - messaging app vendor Hike, - says it has built five million users in just 12 months since it was formed in December 2012. Meanwhile, Zomato, a location-sensitive restaurant recommendation site and app, is mushrooming, expanding across 11 countries.

The year 2014 should see technology driving a revival of the Indian economy, say market forecasters. Improving exports and huge infrastructure projects (that should come with a new government in April 2014) will push it in the right direction. Even the weather – in the shape of milder monsoons - is expected to be favourable. Still, there’s no such thing as the wrong economic climate - just the right response to conditions.

 

A journalist for over 20 years, England-based Nick Booth previously worked in IT in the UK’s National Health Service, financial services and London’s Metropolitan Police, witnessing at first hand the disruptive effects of new technology.

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Nick Booth

Nick Booth worked in IT in the UK’s National Health Service, financial services and The Met Police, witnessing at first hand the disruptive effects of new technology. As a journalist and analyst, his mission is to stop history repeating itself.

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