FDI in power may hit reciprocity wall

The Union government's proposed "reciprocity" policy in the power sector -- to restrict investments from those countries that disallow Indian investments – is creating a lot of confusion. Recently, Union power minister Piyush Goyal said, "If any transmission company of India like Power Grid cannot bid in any other country, cannot invest in any other country, cannot set up transmission lines in any other country then I will not allow any company of that country to come to India."

While Goyal did not name any country, the comments fuelled speculation that India may soon bar China from projects in the power sector, as Beijing does not approve foreign investment in its own electricity grids.

"The (proposed) policy is expected to impact Chinese companies the most, those who were keen to invest in the power transmission sector. Also, the fate of those entities which are participating in the ongoing or upcoming competitively-bid projects is unclear. It is expected that the policy shall be expanded to cover generation and distribution sector as well," said Somesh Kumar, partner & leader (power & utilities).

However, the government's move comes at a time when foreign investment in the power transmission grid is an urgent need, said experts.

Sources told DNA Money that concerns of national security too played in the minds of policy-makers, especially since China is involved. Ritesh Bhatia, a Mumbai-based cyber security consultant, said, "It is not wise to allow FDI at the cost of security of a billion people. The new-age war is cyber war and electricity fuels our cyber weapons. If our power systems are compromised, then how will we be able to mitigate any attacks?"

National security concerns arose even as the telecom sector lies completely vulnerable to attacks, according to cyber security experts who recently had to grapple with the WannaCry Ransomware virus attacks.

The fact that Chinese companies are consolidating their grip on India's telecom market and domestic smartphone companies are fast losing their market share is triggering a panic-like situation.

Chinese phone-makers are making quick inroads into India's fast-growing smartphone market. According to International Data Corporation's (IDC) Worldwide mobile phone tracker report for the first quarter of 2017, Chinese giants have flooded the Indian market in the first quarter of 2017, cumulatively shipping 51.4% of the total smartphones shipped in the Indian smartphone market in January-March period, posting a massive 142.6% year-on-year growth. While the South Korean giant Samsung retained its top slot, others in the top-5 list were all Chinese-based phone makers.

According to a report by a research firm Canalys, while Samsung maintained the top slot with a total shipment of six million units, significant sequential growth saw Xiaomi and Vivo take second and third place.

Chinese supremacy is nearly complete even in other telecom equipment markets such as dongles and routers.

Sajai Singh, partner of law firm J Sagar & Associates (JSA) and a cyber expert, feels while telecom authorities have been focused on providing sufficient security checks on services like cell towers and technology, they haven't put in place similar security safeguards for handheld devices, where Chinese companies have a substantial presence.

"Yes, there is stuff embedded in the phone that can result in information going to the companies that make the cell phone," he said, adding: "Typically, with technology moving at a very fast pace, and the fact that it can be used for extracting data or to share data across borders, we will need to take a relook at our policy vis-à-vis cell phones and other equipment capable of transmitting data and information."

The government does review threats periodically and issue directions like in the case of BlackBerry a few years back. "The government is reactive, but the technology is moving so fast that it is imperative for the government to think ahead and forearm itself for threats that come from unconventional sources," said the cyber security expert.

Vikrant Gupta, senior manager sales & marketing Cyber Astro Ltd, part of Cyber Media Group, said the Union government should ensure that 'clouds' of Chinese or other foreign handset producers should be based in India. "All these handsets companies have their own clouds and most of the data that is stored on our handsets is stored on their cloud. The government can ask these companies to have their clouds based in India itself."

...& ANALYSIS

• Chinese firms have shipped 51.4% of the total smartphones sold in India in January-March period
   
• Samsung retained its top slot, others in the top-5 list were all Chinese-based phone makers