The government on Friday put on hold the preferential market access (PMA) policy that provided for sourcing of sensitive telecom and electronic equipments and technology from domestic manufacturers over security concerns.
The decision was taken at a high-level meeting in Prime Minister's Office that was attended by National Security Advisor Shivshankar Menon, Principal Secretary to the Prime Minister Pulok Chaterji, Telecom Secretary M F Farooqui and top bureaucrats of different ministries.
The policy has been put in abeyance till further order on security grounds, sources told PTI. The PMA policy makes it mandatory for the government to procure a certain percentage of its requirements from domestic manufacturers.
Sources said it was felt that encouraging indigenous manufacturing at the cost of new and better products would lead to distortions in the market.
A moratorium on implementation of the policy has now been imposed till adequate assessment of manufacturing capability for products that qualify for domestic value addition is made.
The Cabinet had in February last year approved the policy keeping in view security issues and threat of cyber espionage. It was envisaged to push manufacturing capabilities in the country to reduce dependence on imports, especially in the strategic fields like defence and telecom.
PMA policy had seen opposition from various foreign trade associations, including industry body Information Technology Industry (ITI) Council which represents major foreign technology companies like Alcatel Lucent, Cisco, Ericsson and Motorola.
Among others, strong objections to the policy have come from US-based groups, where the government has recently limited the sourcing of telecom equipment from Chinese firms on security grounds.
Expressing concerns over the PMA policy, a bipartisan group of 45 American lawmakers in October last year asked the US Trade Representative to take steps against it, saying that it would have detrimental impact on high-tech US exports to India. They held that the policy was in violation of the World Trade Organization rules.
Indian government has said repeatedly that the policy was in compliance with WTO norms and the policy applies to the equipment having security implications.
Meanwhile, domestic manufacturers body TSDMA has sought Prime Minister Manmohan Singh's intervention for pushing the PMA policy. It alleged that "vested interests at the behest of foreign manufacturers are trying to challenge the policy and lobbying hard, perhaps with the aim to paralyse government's efforts to protect the national security interest". India's telecom industry relies heavily on imports to meet its requirements.
According to telecom regulator Trai, only 12-13 per cent of all the local products, made with the aid of foreign vendors in 2009-10, were used in the sector. However, purely
India-made products formed just 3 per cent of the market. The policy is seen as a key step to push domestic production of electronics equipment.
The country imports electronics items worth about $40 billion, according to ELCINA. The National Electronics Policy forecasts such imports to touch a humongous $300 billion by 2020 if efforts are not made to produce hi-tech products in India.