China-India border tensions have led New Delhi to look for alternatives to the Chinese telco, and Jio, run by India’s richest man, has stepped in. If Jio succeeds, it could contest Huawei’s efforts to export 5G to developing economies worldwide, opening up a new area of Sino-Indian competition

During his recent visit to the United States, India’s Prime Minister Narendra Modi met the chief executive of Qualcomm, the world’s biggest semiconductor manufacturer, to discuss a potential investment in India’s 5G infrastructure – a pitch to a major Western telecoms firm that starkly contrasts with New Delhi’s policies vis-à-vis Huawei.

In the past year, the Modi administration has practically banned the Chinese telecommunications giant from participating in India’s 5G network, with Huawei’s fortunes in that market closely following the twists and turns of the larger dynamic of Sino-Indian relations.

Though the Trump administration had started targeting Huawei in early 2019, citing cybersecurity concerns, the Modi government kept the doors open for the company.

India’s decision to engage Huawei was driven by several reasons. Since the early 1990s, economic interdependence had emerged as a major element of stability in Sino-Indian ties. India’s huge market provided New Delhi with some influence over Beijing’s policies. Not without reason, therefore, the Chinese foreign ministry had warned India of “reverse sanctions” if Huawei was excluded from the 5G network trials.

In addition, Huawei provided not only the cheapest but also the best technological solutions for India’s 5G roll-out. Western alternatives such as Ericsson and Samsung were both costly and unproven, while indigenous solutions were hardly available.

Finally, the Huawei decision was also linked to India’s strategic autonomy, both in its foreign and technology policies. By allowing Huawei to participate in its telecommunications network, New Delhi aimed to demonstrate to Beijing that it maintained an independent outlook.

Huawei’s non-participation in India’s 5G network not only threatens significant delays in its introduction, but – in the absence of viable alternatives – also portends huge economic and technological costs. New Delhi, however, has been more than willing to absorb these costs for three important reasons.

First, Huawei has become a casualty of the Sino-Indian border dispute. Ever since the Galwan crisis, during which the Indian Army clashed with the People’s Liberation Army on the undemarcated border between the two Himalayan neighbours, New Delhi has employed a strategy of economic punishment to influence Beijing’s decision-making, with Chinese technology companies being the prime target.

As a response to Beijing’s unwillingness to heed New Delhi’s concerns, India last June outlawed 59 Chinese apps, and did the same for 47 more the following month.

By last August, new investment rules forbade the usage of Chinese-origin telecommunications equipment in India’s government-owned network, and the date of 5G trials were pushed further back.

This May, the Department of Telecommunications formally blocked Huawei’s participation by identifying foreign and indigenous vendors for India’s 5G network. Huawei and another Chinese firm, ZTE, did not make the list on the grounds of “national security”.

Second, the border crisis and consequent strategy of economic coercion have also played into Modi’s neomercantilist economic policies, which have consistently highlighted the need to make India the next global manufacturing hub.

This has translated into a policy of economic decoupling from China, as was evident in India’s decision not to sign the Regional Comprehensive Economic Partnership free-trade agreement. This strategy has also provided an impetus for indigenous and non-Chinese firms to invest in India’s Production Linked Incentive (PLI) schemes.

Whether it concerns the manufacture of active pharmaceutical ingredients for that sector or semiconductors for the electronics industry, the Modi government is also aiming to use the border crisis with China, as well as the global angst about Beijing’s heavy-handed foreign and national security policies, to boost its economic attractiveness.

Lastly, keeping Huawei out was a major gamble and would have backfired in the absence of viable alternatives. However, in the past year, India’s biggest telecoms operator Jio – which is owned by India’s richest business tycoon, Mukesh Ambani – has successfully filled the void.

Jio has not only developed indigenous 5G equipment and will be able to roll out the country’s first 5G network by the end of this year, it is also set to be able to export its products and know-how to other markets.

Jio’s market strategy made full use of Modi’s nationalist economic policies, such as PLIs, but was also able to leverage the Western boycott of Huawei to its advantage. During former US president Donald Trump’s visit to India in February last year, Ambani had pitched Jio’s credentials as the only 5G network “with not a single Chinese component”.

This pitch struck a chord with Western firms: with the help of Facebook, Google, Intel, and others, Jio was able to raise almost US$28 billion to support its 5G transformation. New Delhi and Jio also joined the US-led Clean Network, an alliance of states and private companies that aim to keep Chinese firms out of the 5G business.

There are several factors that underline the potential of Jio’s business model. India’s telecoms sector has an average revenue per user, or ARPU, of US$2, one of the lowest in the world. If the company succeeds in rolling out a cost-effective 5G network in such a competitive and cutthroat market, it will set an example for most of the developing world – which is also Huawei’s primary target.

On top of this, with the help of Intel, Jio is basing its 5G technological infrastructure on Open Radio Access Network (O-RAN). As Bloomberg columnist Hal Brands has argued, this effort to develop common standards promotes compatibility between different types of telecommunications equipment, allowing “different companies to plug and play in a single network” and making it hard for Huawei or any other vendor to establish market superiority.

By the same logic, if most prominent O-RAN networks do not allow its participation, Huawei may be left to fend for itself.

Lastly, unlike Huawei or even Western 5G equipment manufacturers such as Ericsson and Nokia, Jio’s portfolio will not be restricted to being an equipment vendor. It is targeting a suite of interconnected applications such as social media platforms, network operations, payment services, e-commerce platforms and – thanks to its tie-up with Google – it will also sell low cost smartphones. Jio’s vast business portfolio has the potential to snowball its 5G success.

India’s decision to block Huawei does not portend well for bilateral ties with China. New Delhi, however, seems to have given up on Huawei because of the irreconcilable differences on the Sino-Indian border, Modi’s neomercantilist economic policies, and the prospective success of Jio’s 5G pursuit.

The Sino-Indian technology competition is fully on, and India has sided with the US to arrest Huawei and China’s technological march in the field of 5G.