The National Security Council (NSC) Secretariat, the apex agency looking into the country's political, economic, energy and strategic security concerns, has warned against Chinese gearmakers, especially Huawei and ZTE, and said that India must take steps to overhaul its domestic manufacturing capabilities to 'check, investigate and ultimately replace risks that come with foreign equipment'.
The NSC said that as per Intelligence Bureau reports, Chinese vendors such as Huawei and ZTE were part of a Chinese Army project called PLA-863. "As per this programme, Huawei was mandated to focus on switches and routers, ZTE on mobile and fibre networks, Julong on switchboards and Legend on computers with the objective of dominating world telecom scene and strengthening its electronic warfare capabilities," the National Security Council Secretariat said in an April 15 report that was reviewed by ET.
The agency said that Huawei had been operating in India for more than 12 years, had set up R&D centres and factories here, employed more than 6000 personnel in this country, even as it highlighted that the company still imported key components it supplied to both private and state-owned mobile phone companies here.
"ZTE of China was recently awarded a contract for enterprise solutions by the Power Grid Corporation of India to provide fixed-network transmission services across the country. This network will carry the traffic of both the National Knowledge Network and well as the Rural Broadband Project. Open sources indicate that a Chinese company was the lowest and highest bidder for the same equipment for two Power Grid tenders for different regions, thereby implying that a pricing policy motivated by strategic considerations rather than purely commercial factors," its report added.
The apex security body's observations is set to bring the spotlight back on the embattled Chinese vendors Huawei and ZTE, who had recently offered to the Indian government unrestricted access to the software source codes of all their products as they attempt to ease concerns of posing a security threat. As per the NSC, the demand for telecom equipment in India constituted 6.2% (Rs 76.940 crore) of the global demand ( Rs 1,638,255 crore) in 2012-13, even as it pointed out that failure to initiate domestic manufacturing would force the country to import $150 billion worth of equipment during the next ten years.
"This dependence on equipment imported from abroad raises inherent security concerns," it added. "According to UN data, China exported more than $7 billion worth of telecommunication equipment and $2 billion in computers to India in 2011. This represented 55% of total imports in these two product categories.
Indian law enforcement agencies have been expressing concern that widespread use of imported sophisticated equipment, particularly in strategically sensitive sectors like telecom could compromise the country's security. This is mainly due to the potential for embedded malware, rouge software, remote access, denial of source codes, denial of transfer of technology, denial of maintenance know-how and possibly denial of proper and timely service in the event of breakdowns.
Malicious hardware or software implants could be a potent espionage tool for penetrating sensitive and strategic Indian national security sectors which could be exploited in any future conflict with India," the NSC warned in its report.
The agency also pointed out that a recent report by the US Congress Panel that said the two technology majors from China have ties to that country's government and military and must be barred from mergers and acquisitions in the United States.
"In 2011, the US Department of Commerce blocked Huawei from bidding for a contract to construct US National Wireless Network for emergency responders on security concerns. The US Committee for Foreign Investment also blocked the company's attempt to takeover the server company 3Leaf Systems.
Reportedly, due to the US Government's insistence, Symantec dissolved its joint venture Huawei Symantec with a $535 million payout. Recent open sources indicate that Los Alamos National Laboratory in New Mexico dealing with American nuclear arsenals had discovered that is computer systems contained some Chinese made network switches and they thereafter replaced some components due to national security concerns. H3C technologies based in Hangzhou made these devices," the report said. It also said that the Australian government had blocked Huawei from participating in their $ 38 billion National Broadband network.
The NSC has suggested that India adopt a two track approach - building domestic manufacturing capabilities of telecom equipment as well as 'strengthening measures to test and certify equipment that is being integrated into national critical infrastructure networks to mitigate security vulnerabilities'. It has also welcomed the country's new telecom policy (National Telecom Policy - 2102) which states that domestic production of telecommunication equipment should meet up to 80% of the sector's requirements by 2020.