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The politics of technology and site location: impact of state interventionism on an Indian public sector firm

Dilip Subramanian
p. 201-220


Une organisation industrielle peut-elle à la fois accomplir des fonctions économiques et sociales, c’est-à-dire réconcilier ses propres priorités d’efficience productive et d’utilisation optimale des ressources avec des objectifs plus vastes de justice sociale tels qu’ils sont définis par les pouvoirs publics ? C’est la question centrale que cet article pose et à laquelle il tente de répondre à travers l’étude d’un choix technologique et de localisation pris dans les années 1980, dans le cadre d’une grande entreprise de production du secteur public, Indian Telephone Industries. Nous montrons comment les décisions concernant l’implantation de nouvelles usines étatiques ainsi que les choix technologiques ont été le résultat non pas d’une justification économique mais d’une justification politique qui accordait la priorité à la création des emplois. Ceci découle d’une part du paradigme de développement industriel planifié poursuivi par l’Inde depuis l’indépendance en 1947 - paradigme qui offrait la promesse d’un avenir prospère pour l’ensemble de la population - d’autre part, du mode de gouvernance en vigueur dans les entreprises publiques où l’interventionnisme étatique s’est traduit par la perte d’autonomie totale de la direction. L’article conclu en soulignant que la mission redistributive fixée aux entreprises publiques, bien que légitime dans la perspective d’une amélioration du niveau de vie, a nuit gravement à l’efficacité de leur fonctionnement et s’est révélée onéreuse pour le trésor public.

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I owe an immense debt to Blandine Ripert and Clarisse Didelon who not only persuaded me to write this piece, but generously provided several key suggestions and ideas. C. Didelon’s assistance in drawing the map detailing the location of the different production units of ITI is also gratefully acknowledged. Finally, I appreciated the helpful comments made by an anonymous reviewer.


  • 1 P&T was rechristened as the Department of Telecommunications (DoT) in the wake of the first wave of (...)

1Although India’s policy makers began eliminating entry barriers to the telecommunications equipment market from the mid-1980s onward, until the advent of economic reforms in July 1991 the manufacture of most products continued to be reserved exclusively for the public sector company, Indian Telephone Industries (ITI). Ever since its inception in 1948, ITI turned out the entire range of telecommunications equipment from telephones and transmission systems to large automatic exchanges, the last product constituting its core activity. Virtually the totality of its output was sold to a single customer, the Department of Post & Telegraphs (P&T), administered by the Ministry of Communications.1 P&T also operated as the company’s tutelary authority, forcefully exercising its ownership prerogatives to a point where the management was deprived of all voice in the formulation of corporate strategy.

2Lowly-qualified men overwhelmingly dominated ITI’s workforce whose strength reached a peak of 32,447 in 1988. The gender composition of the labour force thus represented a radical break with the industry norm where the ‘nimble fingers-sharp eyes’ profile informing the majority of jobs led to their being sexually stereotyped as female. The flagship Bangalore factory accounted for slightly more than half the total personnel, with the rest employed in five other units situated elsewhere in the country.

3Embracing a historical perspective, this paper will address two interwoven themes, one relating to the politics of technological mutation as it unfolded at ITI, the other to the politics of spatial expansion of the company’s manufacturing operations. The underlying argument runs as follows. The geographical expansion of ITI which intersected with the transformation of its technological base, underlined a fundamental contradiction between the principles of two orders of worth or regimes of justification (Boltanski, Thévenot, 1991): a civic order grounded in the equitable distribution of scarce national resources which the government desired to promote, and an industrial order, stressing the productive mobilization of those resources so as to ensure the long term growth of the enterprise which was the objective of company officials.

4Large-scale state-sponsored industrialization, the developmental paradigm embraced by the post-colonial state had, after all, been heralded as the answer to centuries of poverty and backwardness to which colonial domination had subjected India. Industrial growth, it was contended, would function as the engine of economic prosperity and social wellbeing for the country at large by reducing regional income disparities and ensuring that all sections of the population benefited from public investments. In this mission of uplift, the public sector occupying as it did the commanding heights of the industrial sector was destined to play a vanguard role. By implanting new manufacturing units in economically and socially backward regions, the local population would have access to meaningful employment opportunities.

5Strong normative ideals of redistributive justice thus underpinned the Nehruvian development strategy, imposing definite obligations on the ruling elites. Their claims to legitimacy depended at least on their being seen to fulfil this objective. So on each occasion investments were earmarked for a new public sector unit in the different Five Year Plans, the claims of each state had to be carefully considered and weighed. Even if some states by virtue of their stronger bargaining clout ended up being more advantaged than others, it was the responsibility of the government to ensure that a measure of equity prevailed in the spatial distribution of these units.

6Furthermore, the primacy accorded to the Indian state in spearheading the overall thrust of capital accumulation meant that resource allocation priorities with respect to the siting and/or expansion of factories in the public sector were neither framed at the level of the company, nor that of the supervisory ministry, but at the highest echelons of the government. This in turn subjected the entire decision-making process to all manner of pulls and tugs from a host of contending directions. By virtue of the employment-generating potential large state-owned factories offered, politicians from across the spectrum were understandably keen to ensure these ‘temples of modernity’, as they were likened by Nehru, struck roots in their constituencies. In an overstocked labour market where government jobs, synonymous with life-long security, constituted the greatest imaginable good, the promise of providing such jobs endowed political figures with a supplementary and most effective source of patronage. These forms of patronage could then be leveraged to extract electoral gains by helping to buttress as well as extend the reach of the traditional vote banks upon which generally rested political fortunes.

7As a result of all these compulsions, economic considerations in the shape of raw material availability, market proximity, or infrastructure quality invariably tended to take a back seat to political ones when it came to finalizing the implantation or the expansion of public sector factories. This in turn would have significant consequences both on the operating efficiency and the financial viability of these factories. Since they were more often than not located in greenfield sites, lacking even minimal infrastructural facilities, capital expenditures far exceeded the levels that would have been required had more logistically appropriate sites been preferred. The need to provide for all basic amenities translated into frequent delays in the commissioning of the projects, and its corollary cost overruns. The absence of a qualified workforce further compounded the difficulties.

8The overall financial burden incurred by the exchequer on account of these new state-owned factories was thus anything but negligible and must be juxtaposed with the economical and social gains accruing to the local population. In a nutshell then, the paper will show how and why the goals of social justice proved totally incompatible with the economic imperatives of organizational efficiency and what implications this had for ITI in particular. For the imposition of the official policy options would come at a high cost. They severely undermined the overall financial stability of the telecommunications company and condemned it to a gradual but inexorable decline once its monopoly privileges ended.

9Just as locational choices involving the implantation of new public sector manufacturing units or the geographical diversification of existing ones are strongly coloured by political exigencies, so too, one could argue, are technological choices. A delicate task even in the best of circumstance, arbitrating between competing technological solutions, one could argue, becomes even messier in the case of state-run enterprises. Partly this has to do with the conflicting interests of the decision-making instances involved. Partly with the ‘political contingencies’ flowing from state ownership where all the actors implicated in the organisational affairs of the firm, be it company officials, the operating ministry, or the government, are accountable to a wide range of regulatory agencies (Batstone, Ferner, Terry, 1984: 10-11). This renders the elaboration and implementation of strategy in public firms a far more complex and uncertain process than in the private sector.

10In the specific case of ITI, the subordinate status of the management was underscored by the fact that all issues relating to the selection of a technology partner were the exclusive preserve of P&T functionaries and the government, as we shall see. For the administrative ministry, decisions as vital as the sourcing of know-how also represented important symbolic markers. They afforded an opportunity to reaffirm its ownership rights and authority far more decisively than the routine exercise of bureaucratic power allowed.

11More generally, technology choices, as different authors have reminded us, are rarely a straightforward and rational affair; nor do they possess the character of inevitability portrayed in certain determinist interpretations. This is because they are mediated by the exercise of power (Thomas, 1994: 5-6, 82-84 and passim; Noble, 1984). While important, the economic calculus rarely acts as the exclusive driving force. Other factors such as the personal and professional interests of different organizational groups also intervene to influence the selection process. In other words, apart from technical and economic criteria, technologies are also adopted for their political and symbolic value.

  • 2 Switching systems accomplish the following functions in a telecommunications network:
    a) they trans

12Concentrating essentially on the 1980s, this paper by virtue of its historical dimension combines manuscript sources with oral accounts. It draws on both secondary and primary archival material, including official reports which remain unpublished as well as interviews conducted with top management executives who ran the company during these critical years. The paper is structured in three parts. It will begin by focussing on the technological mutation of ITI, charting both the impact of technology choices on the company’s organizational structure, and assessing how these choices came to be made and implemented. We shall devote special attention to the transition in the early 1980s from electro-mechanical switching exchanges to fully electronic systems which represented a fundamentally radical change, since nothing less than the adoption of a ‘new technological paradigm’ was at stake (Brousseau, Petit, Phan, 1996).2 Because of the government’s actions vetoing the recommendations of the management with regard both to the sourcing of technology and locational options, the move to electronic switching turned out to be both highly controversial and complicated.

13The second part of the paper will deal with the topic of the geographical diversification of ITI. That inadequate manufacturing capacity at ITI was increasingly hurting the interests of the P&T and the economy as a whole as a whole is beyond debate. With demand for new telephone connections growing by leaps and bounds, the rationale for setting up additional telecommunications equipment factories rested on solid economic foundations. However, the very fact that three of these new factories came to be sited in a single state, Uttar Pradesh, electorally speaking the most powerful Indian state, revealed the political logic driving ITI’s transformation into a multi-unit company. The expansion of the company also had extremely deleterious effects for the mother Bangalore factory: much-needed investments to modernize plant and equipment were diverted elsewhere.

14In the concluding section, we shall follow the twists and turns in the road leading to the introduction of electronic switching technology at the Bangalore plant. Delays sustained in taking up the production of these new exchanges saw large numbers of workers remaining underemployed for months on ends. Yet even after the advent of electronic systems, the management struggled to find jobs for the entire workforce since this was a low labour-intensive technology compared with the older electro-mechanical equipment.


1948: Creation of company in Bangalore. Strowger transfer of technology agreement.

1964: Crossbar transfer of technology agreement.

1969: Start of geographical diversification: Launch of Naini factory in Uttar Pradesh (UP).

1971: Launch of Srinagar factory (Kashmir).

1976: Launch of Palakkad factory (Kerala).

1978: Launch of Rae Bareli factory (UP).

1980-81: Plans for launch of electronic switching plant submitted to government.

1982: Electronic switching technology transfer concluded with Alcatel.

1984: Launch of Mankapur factory (UP) to manufacture electronic exchanges.

1984: C-DoT promises to indigenously develop large electronic switch.

1990: New transfer of technology agreement with Alcatel after C-DoT delays delivery.

The transition from electro-mechanical to electronic technology

15Given the absence of a robust technology base together with the failure of indigenous research efforts to design switching systems until the mid-1980s at least, India was totally dependent on massive infusions of imported technology to manufacture telecommunications equipment locally. The acquisition of specialised know-how, though, essentially took the form of outright purchases via transfer of technology agreements so as to prevent foreign companies from exercising direct financial and strategic control.

  • 3 The indirect transfer route involves a firm selectively adopting designs and production techniques (...)

16The first such agreement concluded by the P&T, on behalf of ITI, was in 1948 with Automatic Telephone Exchanges, a British manufacturer of strowger electro-mechanical systems, the first automatic telephone switch to have been invented. All the process and design elements associated with this technology were integrally imported with the result that ITI followed a direct technology transfer path as opposed to an indirect path.3 In other words, it embraced what some authors have termed an ‘imitative’ or ‘dependent’ strategy (Freeman, Soete, 1997: 275-81; Kranzberg, 1986). But the monopolistic privileges enjoyed by the public sector firm signified that recourse to such a strategy carried with it no competitive disadvantages. There were no rival players looking to either improve on the technology employed by ITI or to underprice it.

17In 1964, the government acting on the recommendations of an expert body, comprising largely of P&T officials, negotiated a second technical collaboration agreement. The accord this time pertained to the production of crossbar exchanges, a more advanced vintage of electro-mechanical systems. Know-how was to be supplied by Bell Telephone Manufacturing, the Belgian subsidiary of the giant ITT Corporation along much the same lines as the older strowger transfer, namely a complete package. However, in absolute contrast with the latter tie-up which proceeded without a hitch from start to finish, the crossbar transfer of technology turned out to be a fiasco from the outset. This was as much related to the incompatibility of the choice of technology with local needs as to inefficiencies on the part of the Belgian company which lacking adequate resources struggled to fulfil its contractual obligations. The crossbar agreement, in fact, represented a textbook case of all that went wrong in the diffusion of know-how from a developed to a developing country.

18Apart from inflicting durable damage on an already chronically dysfunctional telecommunications network, the fallout from this injudicious decision would also leave an impact on another crucial area: research on the next generation of switching equipment. From the mid-1960s onwards, a small group of engineers at P&T’s research department had begun work on designing a prototype electronic exchange (Meemansi, 1993: 8-19; Alam, 1981). The crossbar misadventure, however, caused much time to be lost. The resources and energies which should have normally been focussed on developing an electronic exchange now got diverted to the India Crossbar Project, the name given to the endeavour to redesign the imported system so that it functioned more reliably under Indian conditions. Still, the P&T team succeeded in coming up with a small experimental electronic switch. Thereafter the project would make little headway. For as in the past with respect to electro-mechanical systems, this time too the government decided that foreign collaboration was indispensable for the manufacture of electronic switching equipment.

19Such a course of action had been strongly urged by the various committees appointed by P&T from the mid-1970s onwards to examine how best the transition to electronic switching could be handled. These expert bodies had arrived at the conclusion that indigenous initiatives to design and fabricate electronic switching systems (ESS) were inevitably doomed to failure as neither the infrastructure to develop high-quality professional grade components nor the process expertise to mass produce the equipment existed in the country. One of the committees had also recommended establishing two separate factories by 1983-84, with a capacity of 500,000 lines each, to fabricate local electronic exchanges.

20A similar ground plan would be submitted by ITI to P&T in June 1980. Besides calling for the new units to be placed under its control, the company stressed the importance of situating one of them at least in Bangalore in order to absorb the surplus labour arising from the progressive scaling down of strowger output. However, in December 1980, after discussions with other ministries, the Ministry of Communications, which in principle as ITI’s parent ministry was supposed to defend its interests, would draw up a radically different proposal. In the policy paper it presented to the high-power Cabinet Committee on Economic Affairs, chaired by the Prime Minister, the Communications Ministry wrote that the first ESS factory ‘should be under a Corporate entity separate from ITI,’ while a decision concerning the second would be taken later (COPU, 1982: 17-18). To worsen matters, the paper added that the question of whether ITI would even be allocated the second plant remained unresolved.

21These recommendations would in part be endorsed, in November 1981, by the Sarin Committee, also known as the Committee on Telecommunications. Although headed by a top functionary from the Ministry of Communications, this body had been set up directly by the government with the objective of improving the performance of the telecommunications system in the country, and included representatives from other official agencies. This explained why it did not see entirely eye to eye with the Communications Ministry.

22In one of its reports, the Sarin Committee agreed that the first ESS plant should not come under ITI’s purview, but felt the second plant must be a part of the company, though built on a new site in Bangalore. This was probably with a view to ensuring the emergence of a more efficient and disciplined work culture (Fifth Interim Report of the Committee on Telecommunications, 1981: 15). As the report pointed out, apart from facilitating the redeployment of part of the excess strowger manpower,

23….considerable R&D and production capabilities exist in the ITI Bangalore and will be available to the new unit, thus importantly helping in stepping up production in a relatively short period.

24The Sarin Committee disagreed with the Communications Ministry on another point as well: it wanted no delays in launching the second ESS factory, underscoring the chronic shortfall in the availability of switching equipment. The committee also recommended that only digital electronic exchanges should be manufactured in the proposed new ESS factories. Among the various advantages digital technology held over the older generation of analogue switches, the committee cited lower capital requirements, greater reliability, simpler manufacturing processes and lower effort, and the possibility of both starting production faster and increasing capacity more rapidly (Second Interim Report of the Committee on Telecommunications, 1981: 3-7).

25In the end, none of the proposals elaborated by the different committees would be fully taken into account by Indira Gandhi’s Congress-I government. In the second half of 1982, it announced the creation of one new ESS plant which would come under the control of ITI. But instead of Bangalore it selected Mankapur in the state of Uttar Pradesh as the site. The plant would make large local exchanges with technology being sourced from the French state-owned transnational CIT-Alcatel whose E10B system was identified as appropriate to Indian usage patterns once P&T had found its newer E10S system too expensive.

  • 4 The Indian government is thought to have paid an extremely high price of FFr 255.6 million for the (...)

26From the early 1970s onwards there were regular contacts between P&T and ITI engineers and Alcatel, and, even though the latter had not responded to the global tender issued by the government, the E10 exchange clearly had the preference of the Indian side. But what conclusively settled matters in favour of Alcatel was the bilateral agreement signed between the Indian and French governments in May 1982. The French offered to provide financial assistance to the tune of FFr 1 billion covering all aspects of the transfer of technology tie-up (royalty fees, machinery, equipment, training and R&D) (Brundenius, Göransson, 1986). In addition to helping set up the Mankapur plant, Alcatel was also supplying know-how to fabricate trunk automatic switching equipment at ITI’s existing Palakkad plant. Notwithstanding the attractive aid package tied to the Alcatel collaboration, Brundenius and Göransson have argued that it was not the most beneficial of deals for India either from the economic or the technological standpoint. Among other things, the government is thought to have paid an extremely high price for the E10B system despite it being a less exploited or proven technology in foreign markets compared to a similar exchange developed by Ericsson.4

Political expediency guides geographical expansion of ITI

27In the wake of the launch of the new ESS factory in Mankapur, ITI now managed six production facilities in different parts of the country. In addition to the main Bangalore unit, one was situated in Srinagar (Kashmir), another in Palakkad (Kerala), and the remaining three in Uttar Pradesh (UP). Of the six plants, Srinagar was by far the smallest and had been built in 1971 to fulfil essentially a political purpose as in the case of the other diversifications.

  • 5 Interview with L.G. Varadharjan, ex-General Manager, ITI Bangalore, February 1999.

28It was to show that public sector was investing in a so-called backward state. It was all mere “tamasha” (farce). Labour here was not skilled at all.5

  • 6 Note to ITI Board, 269th meeting, Item B3, December 1993. Since the unit was being kept open for po (...)

29Supplying telephone cords to start with before being upgraded to assemble phones, the plant experienced problems of sub-standard quality. Also, output levels never reached the installed capacity of 200,000 telephones annually, and began to seriously decline from 1989-90 onwards due to the political disturbances affecting the state. By 1993-94, production had dropped to a record low of 25,000 instruments, while losses had accumulated to around Rs 140 million. Threats of violence levelled at certain groups of employees also obliged the company to expatriate over a third of the 240 permanent employees working here to its other units. Still, the Srinagar factory continued to stay in operation, for the ‘unit has to be run purely for country’s political reasons’, even though it ‘is not a commercially feasible proportion for ITI (sic)’.6

Location of ITI manufacturing units (1988)

Location of ITI manufacturing units (1988)

Source : ITI Personnel Dept. 2009
Réalisation : D. Subramanian et C. Didelon – Dec. 2009 – Fait avec Philcarto

30Established in 1976 to fabricate electronic PABXs, the Palakkad plant was also a fairly small operation to start with: until the mid-1980s, less than 400 employees figured on its rolls. But from this point onwards the workforce would double. Following the expansion of the factory, at a cost of Rs 564 million, to undertake the production of digital trunk exchanges with Alcatel know-how, employment climbed to a maximum of 911 people in 1992-93 (COPU, 1997: 16).

  • 7 Of the three, Rae Bareli had the biggest workforce (6241), followed by Naini (4731), and Mankapur ( (...)

31How are we to explain the fact that three of ITI’s six units came to be implanted in one and the same state, Uttar Pradesh? The reason for this geographical over-representation was neither favorable economic condition by way of access to resources and markets, nor strategic considerations, but short-term political compulsions. The fact that it was the ‘home’ state of Indira Gandhi as well as other influential Congress politicians served to explain the rationale behind the locational choices of the government. Given the strong employment generating potential public sector enterprise companies commanded, both directly in terms of providing factory jobs and indirectly in terms of stimulating a range of feeder services, bringing the units of ITI to the state was, for these politicians, an important means of consolidating and nurturing their electoral base by ensuring voter loyalty. As Gérard Heuzé has rightly observed, the location of any new state-owned company represented high stakes for the political class (Heuzé, 1990; Chaudhuri, 1994; Das, 1997). In 1990-91, when they were running at their peak strength, the three ITI factories established in UP jointly employed 13,408 people out of a total workforce of 32,215.7

  • 8 Interview with U.D.N. Rao, ex-ITI Chairman, 18 July 1996.

32The first of the UP units to come up was the Naini transmission and telephone factory, and it was situated in the Allahabad parliamentary constituency of the then Communications Minister H.N. Bahuguna. It also marked the first major geographical expansion of the company outside Bangalore. Sanctioned by the government in October 1969, the transmission division went on stream two years later at a cost of Rs 34 million with technology developed indigenously by P&T and ITI engineers. With Bangalore proving incapable of single-handedly satisfying the needs of P&T, in August 1970, the government also authorized the launch of a second division to manufacture telephones, investing Rs 75.9 million for this purpose (CAG Report, 1992: 4). While the creation of the Naini unit definitely eased the overall supply constraints with respect to telecommunications equipment, it affected the main Bangalore plant rather severely. Since it had to divert part of its output to Naini until operations there could get underway fully, Bangalore was saddled with idle assembly capacity for fairly long periods.8

  • 9 Note from N.V. Shenoi, Secretary, Ministry of Communications to the cabinet, Ref. No. 1.F.(11)/69, (...)

33The second ITI plant in UP would be situated in Rae Bareli, the parliamentary constituency of Indira Gandhi. Prospective sites in Kerala and Madhya Pradesh had also been inspected, but the government opted once again in favour of UP (Project Report for Strowger Switching Equipment Factory at Rae Bareli, 1973). Although the choice of the switching system to be manufactured was to be finalized later on the basis of the proposals submitted by an expert body, it was commonly expected that the Rae Bareli factory would adopt the crossbar system.9 However, with the imported technology performing poorly, the government, acting on P&T’s recommendations, decided in 1974 that it would produce 100,000 lines of strowger equipment annually as a stopgap measure so that the plan targets could be partly achieved.

34The plant was scheduled to commence operations from May 1978. But even five years after that, the plant was producing only about 81,000 lines instead of the programmed 100,000 lines (CAG Report: 4). The company attributed its inability to install the full manufacturing capacity, and the attendant shortfall in output, essentially to the difficulties involved in developing infrastructural facilities in a greenfield area. As one ITI chairman explained to a parliamentary committee, infrastructural facility includes electrical, sewerage…In that area nothing was there. Everything had to be developed and created by ITI... (COPU, 1997: 13)

35When questioned as to why this location had been selected ‘when nothing was available there’, the chairman replied that the ‘site was recommended by the Ministry (of Communications) and ITI was not involved in decision making in this regard’ (Ibid). Being a greenfield area dominated by an exclusively agricultural workforce, the management also struggled to recruit adequate numbers of skilled workers, and instructions specifying that it employ as many local people as possible further tied its hands. In the absence of adequate infrastructure and trained personnel, quality standards inevitably suffered.

  • 10 Interview with M.V. Srinivasa Rao, ex-Executive Director, ITI Bangalore, February-March 1999.

36…things got so bad at one stage that two to three months of equipment were rejected by P&T... So people had to be sent from Bangalore to train Rae Bareli staff and Rae Bareli staff also came to Bangalore.10

37In 1980, the government incurred a much bigger investment of Rs 645 million at the Rae Bareli plant, expanding it so that it could undertake the manufacture of the locally designed Indian Crossbar Project (ICP) exchanges. Production began in 1982-83. But despite manpower exceeding requirements, at no point of time in the next decade or so did the factory ever succeed in reaching the peak annual capacity of 100,000 lines (CAG Report: 5, 22).

38The decision to allocate to Rae Bareli the ICP technology which would be declared obsolete by 1994-95 flew totally in the face of reason and prevented the most optimal utilization of both the company’s resources and public investments. Firstly, it would have been far more logical for the main Bangalore plant to make the ICP switch since it was already turning out crossbar exchanges based on Belgian technology, and therefore possessed the necessary infrastructure and expertise. Secondly, and more significantly, fabricating ICP equipment in Bangalore would also have made more sense as the Rae Bareli unit could then have embraced digital technology. For it must not be forgotten that at about the same time as the ICP division was going on stream, P&T and the government were finalizing plans to launch the first ESS factory. One could well argue that had the authorities decided to produce the Alcatel-designed E10B system at Rae Bareli, the necessity of establishing a totally new unit at Mankapur for this purpose would not have arisen at all, thus saving the exchequer considerable expenditure.

  • 11 Interview with Srinivasa Rao.

39Nambiar when he was chairman (of ITI) protested to the Ministry (of Communications) that setting up the crossbar plant in Rae Bareli was a wrong choice since electronic exchanges were then coming on stream world over.11

40Thus, instead of making the leap to electronic switching, the Rae Bareli unit would find itself stuck in the electro-mechanical era with a product mix comprising one totally outdated technology, strowger, and the other, ICP, with the disadvantage of being neither an advanced nor a proven technology. Much of the difficulties the unit would subsequently wrestle with, of over manning and lack of orders would stem from these ill-advised technology choices imposed upon it by P&T.

  • 12 For want of ‘physical amenities and accommodation’ both in Mankapur as well as the adjoining city o (...)
  • 13 Investment estimates for establishing the plant at Bangalore had worked out to be much lower, at Rs (...)
  • 14 Initially, infrastructural costs had been fixed at Rs 274.40 million, but following the cost overru (...)

41Like Rae Bareli, Mankapur, which fell within the constituency of a Congress member of parliament with close links to Indira Gandhi, was a greenfield area. Like Rae Bareli, the setting up of a modern factory here would be handicapped by the absence of adequate infrastructural facilities.12 The most immediate consequence of sitting the plant in a remote location was cost overruns with the project finally costing 20 per cent more than the original projections. (CAG Report: 6).13 The high social costs incurred on the project can be measured from the fact that over a fifth of the total investments would go towards the development of infrastructural facilities (Ibid; COPU, 1997: 17-18).14

42Second, although the principal objective of locating the plant in a backward area was to encourage economic growth, notably by providing employment opportunities, these benefits seem to have been available only to a limited extent to the local population. Because of the paucity of trained employees, a sizeable proportion of jobs actually went to outsiders. Moreover, even outsiders, especially supervisory and management personnel were extremely reluctant to come and work in a place where all material comforts were lacking. A number of skilled jobs therefore remained vacant for long periods.

  • 15 Interview with Srinivasa Rao.

43It was impossible to induce soft ware engineers to go to a god-forsaken place like Mankapur…Nothing was available there, not even a glass of water…The suggestion to give lower technology jobs and alternative projects to Mankapur instead of high technology electronic exchanges was vetoed by Indira Gandhi.15

  • 16 Another study shows that out of the 290 medium and large public sector projects, sponsored by the c (...)

44Third, as a result of all these factors, the project would suffer from delays. Production was originally scheduled to get underway in December 1984 and the full capacity of 500,000 lines achieved 60 months (or 5 years) later. But this target would only be reached after 92 months (or 7 years and 8 months) in 1991-92 (CAG Report: 6-7). As Sukhamoy Chakravarty has observed, India’s experience in the completion of projects has been ‘highly unsatisfactory’, before adding that all ‘economy boils down to the economy of time’ (Chakravarty, 1987: 57-8).16 Over time, the Mankapur unit would become the most profitable of the company’s six units. Yet, from the perspective of the flagship Bangalore plant, no other expansion measure decided by the government with respect to ITI would have more adverse effects than the one to locate the first ESS factory in Mankapur.

  • 17 Interview with Srinivasa Rao.

45Equally importantly, the proliferation of spatially extended plants led to a fragmentation of ITI’s manufacturing capacity and prevented it from exploiting economies of scale in its operations. Doubtless, one explanation why ITI products were overpriced lay in scale dis-economies. Production volumes in none of the company’s factories were high enough to allow the benefits of mass production to be translated into higher productivity. As one official pointed out, output levels for many of the products turned out by ITI were ‘too small for a big company and too big for a small company’.17 Criticizing the decision to manufacture local electronic exchanges in Mankapur and trunk exchanges in Palakkad, the Department of Programme Implementation, attached to the Planning Commission, wrote that it raised transport costs, affected skill development and neutralized potential scale gains (Mani, 1995).

Delays in introducing digital technology at ITI Bangalore

46As mentioned earlier, in their respective recommendations, both ITI and the Sarin Committee, the latter even at the cost of disagreeing with the Communications Ministry, had strongly urged that at least one digital switching factory should be based in Bangalore. This consensus was based on the awareness of the need to rapidly upgrade the technological capability of the main Bangalore plant. For ever since the early 1980s, it had become evident that the older electro-mechanical systems would be progressively phased out. In 1984, a working group appointed by the P&T Board would categorically state in its report that ITI should stop manufacturing both strowger and crossbar switching equipment in Bangalore by 1990, though the closure of the crossbar division would actually occur two years ahead of this time limit (Report on Phasing out Electro-mechanical Equipments, 1984: 37-40, 62.) Steps to introduce new product lines therefore had to be taken quite urgently failing which a large section of the workforce risked being made redundant.

  • 18 The government itself was divided on this question as can be seen from the fact that Indira Gandhi (...)

47The government, however, selected Mankapur as the site of the first ESS unit.18 In itself, this policy option would not have proved so damaging to the interests of the Bangalore unit and the company as a whole, had it been backed up by the immediate launch of a second ESS plant in Bangalore. In fact, the cabinet had given its blessings to such a plan in June 1983 with know-how again to be sourced from Alcatel, and the factory was supposed to reach full production capacity by 1990. But due to ‘inexplicable delays’ it would finally never see the light of day (Report of Expert Committee on C-DoT, 1990:1). It was this, more than anything else that caused tremendous difficulties for the company. For it would not be able to synchronize the phasing out of the obsolete electro-mechanical technologies at the main Bangalore plant with the introduction of new digital technology which in turn frustrated its attempts to redeploy an estimated 6,000 surplus workers (CAG Report: 21).

  • 19 Interview with K.P.P. Nambiar, 23 July 1996.

48At the same time, the failure to establish the second ESS plant in Bangalore retrospectively underscored even more strongly the irrationality of the government’s decision to site the first ESS plant in Mankapur. For even as workers at the Bangalore plant were idling, the company was recruiting fresh hands at Mankapur, and by 1991 when both the strowger and crossbar divisions had been shut down, the latter plant already had 2436 employees on its rolls. As K.P.P. Nambiar, the ITI chairman who ran the company during these crucial years of transition to electronic switching, bluntly put it, locating the first ESS plant in Mankapur was a ‘disaster for ITI’.19

  • 20 Labour requirements at the Plessey plant in Liverpool were 40-60 per cent lower for the semi-electr (...)
  • 21 Between 1973 and 1983, the number of employees in the telecommunications manufacturing industry in (...)

49To the extent that ITI was constrained to carry sizeable quantities of excess labour, its profitability was certainly affected. However, it cannot be denied that, compared with electro-mechanical exchanges, the manufacture of electronic exchanges was a far more capital-intensive operation. The elimination of practically all machining tasks, accompanied by the introduction of printed circuit boards and integrated circuits, plus greater recourse to automated testing techniques, all meant that the labour requirements of the new digital systems were two to three time lower than those of strowger and crossbar. ‘The once labour intensive switching industry (had)...become a capital intensive industry’ (Chapuis and Joel, 1990: 565)20–– this is substantiated by the massive reductions in staff strength experienced by big equipment makers globally all through the 1970s and the early 1980s.21

  • 22 Source: ITI Personnel Department. Of the 16,813 people employed at the Bangalore plant in March 198 (...)

50Further, the poor qualifications of the ITI workforce were bound to have hindered optimal redeployment. In 1985, barely five per cent of the roughly 2800 employees in the Bangalore crossbar division had any training pertaining to electronics or electrical engineering. Likewise, no more than 500 of the approximately 4150 employees on the strowger division’s rolls in 1990 possessed formal technical qualifications of any sort.22 So even if the second ESS plant had come up, the company would have been hard pressed to find jobs for all the surplus workers. But the problem would unquestionably have been of a much lower magnitude.

  • 23 C-DoT officials claim that between 1985-89 only $40 million was spent in research (Meemamsi:118-19) (...)

51Most of the ‘inexplicable delays’ that brought about the abandonment of the second ESS factory project at Bangalore had to do with events that occurred within the telecommunications sector during the second half of the 1980s. In February 1984, the Congress-I government, headed by Rajiv Gandhi, created an autonomous research body, the Centre for Development of Telematic Services (C-DoT) with a mandate to indigenously develop state-of-the-art digital technology. It was piloted by a dynamic Indian telecommunications specialist living in the US, Satyen Pitroda who enjoyed the confidence and support of Rajiv Gandhi. C-DoT, which began operating in August 1984, announced a very ambitious ‘36 months, 36 crores’ objective. It promised to deliver a large electronic switch with a capacity of 40,000 lines that would be one if not two generations ahead of the E10B within three years and at a cost of Rs 360 million. This represented a fraction of the $500 million to $1 billion that major transnational corporations had incurred by way of R&D expenditures on building their respective digital systems.23 C-DoT had played an extremely positive role in extending the reach of the national network, especially by connecting rural areas. But as one of its key executives himself later admitted, the ‘36 months, 36 crores’ objective was ‘over ambitious’ (Meemamsi: 22, 36-7).

  • 24 In advanced countries too, telecommunications administrations and equipment suppliers experienced c (...)

52Capitalizing on the delays in establishing the second ESS factory, C-DoT now recommended to the government, that ITI should adopt the indigenous switch it was in the process of designing, rather than the Alcatel system. The research body had no doubt come up rapidly with a 128-line public automatic branch exchange (PABX), followed by a 128-line rural automatic exchange (RAX) for usage in the countryside, its most acclaimed achievement. These two small exchanges had also been licensed for production to public sector firms, including ITI. However, as the 36-month deadline drew closer, C-DoT was nowhere close to making a breakthrough on its primary mission, the 40,000-line Main Automatic Exchange (MAX). Disregarding this lapse, in the latter half of 1987, the prime minister’s office decided that the second electronic switching factory in Bangalore should only go in for indigenous systems. Warnings of the threat of under-employment at the main Bangalore plant were issued from various official quarters. The political leadership disregarded this information, apparently convinced by the assurances of top C-DoT executives that delays would not in any way compromise their efforts. But as ITI would discover to its profound dismay, the first MAX would not be ready before August 1989, and this possessed a maximum capacity of just 1400 lines. While a bigger 10,000 line switch was developed in 1991, the 40,000 line switch would come out only in 1995 by which time it was much too late to realistically consider adopting this technology. So with C-DoT failing to deliver its large switch on time, whatever hopes ITI might still have nurtured of establishing the second ESS factory in Bangalore now vanished for good. The company thus paid a high price for the vacillations surrounding technology selection, and lost over three years waiting to make the cross-over from electro-mechanical to electronic systems at the main Bangalore plant.24

53In 1990, ITI re-opened negotiations with Alcatel to acquire an upgraded version of its digital exchange, the OCB-283. With the Rajiv Gandhi government having been ousted from power by then, C-DoT had ‘lost its political patronage and direct access to the Prime Minister’ (Meemamsi: 71). So the way was again clear for ITI to import foreign technology. Despite the apprehensions of the Bangalore union that this new system too would be diverted to Mankapur, it was finally inducted at the mother factory. The OCB project, though, would only furnish a partial solution to the question of excess labour, facilitating the redeployment of no more than 1000-2000 workers. As company officials pointed out, ‘being a sophisticated line, it is least manpower oriented…So, surplus manpower continues with us’ (COPU, 1997: 43).


54This paper has brought to relief the heteronomy of ITI management in formulating long-term corporate growth policies. Company officials were totally excluded both from the process of technology selection and the expansion of production facilities and resource allocation. The state and P&T played a pivotal role as they forcefully exercised their political and administrative prerogatives to determine the strategic options the public sector company would embrace. However, wrong or ill-conceived technology choices made by the supervisory ministry and the government gave rise to a vicious cycle. Instead of remedying the situation, their initiatives aggravated the poor functioning of the telecommunications network and further strained equipment supplies, leaving the authorities sometimes with no alternative but to resort to costly imports in order to satisfy the burgeoning demand for telephone connections.

55At the same time, all locational decisions touching upon the creation of the different units were not only taken by the government; they obeyed political compulsions rather than economic ones. These policy preferences also foregrounded squarely the contradiction between the goals of planned industrial development and social equity and the logic of industrial operations. On the one hand, regardless of short-term political considerations, the authorities can hardly be faulted for having wanted to site the new units of ITI in greenfield areas with a view to generating jobs for and improving living standards of the local population (though the rationale underlying certain decisions, notably the establishment of the first digital switching factory at Mankapur, was hard to understand). The economic and social disparities between the different regions of the country could only be narrowed down by promoting such purposive measures.

56On the other, they triggered an inflation in project costs as well as delays in implementation and bringing the plants to peak capacity. Both capital and labour productivity, and in turn, the rate of return on investments, hinged on the optimal allocation and utilization of all available resources. Since this was not the case, the operating efficiency of the units inevitably declined, while their capital-output ratio increased. Inefficiencies in the allocation of fresh investment resources also had a supplementary effect: existing productive capacities created at a high cost were squandered given that new plants came up at the expense of older ones whose capacity remained under-utilized. Thus, if ITI suffered heavily on account of the government’s interventionist actions, the price the economy as a whole was required to pay was no less substantial.

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1 P&T was rechristened as the Department of Telecommunications (DoT) in the wake of the first wave of telecommunications reforms initiated by the Rajiv Gandhi government during the mid-1980s.

2 Switching systems accomplish the following functions in a telecommunications network:
a) they transmit signals conveying the identity of the destination called;
b) establish connections through a network for conversational use during the entire call;
c) process signal information to ensure the disconnection of the network connection. An electronic switching system digitizes analogue signals from subscriber lines, and interconnects them.

3 The indirect transfer route involves a firm selectively adopting designs and production techniques from abroad, these inputs then being progressively developed and refined by in-house research and development personnel.

4 The Indian government is thought to have paid an extremely high price of FFr 255.6 million for the E10B system. In comparison, the Brazilian affiliate of Ericsson purchased the AXE system, a technology comparable to the E10B, from the Swedish transnational for roughly FFr 70 million. Moreover, by the end of the 1980s, 71 countries had adopted AXE, and of the total 22.9 million lines installed worldwide 90 percent were in foreign markets. In the case of the E10B, it was in use in 57 countries, and though more lines had been installed worldwide (25.4 million), foreign markets accounted for only 22 percent of the total.

5 Interview with L.G. Varadharjan, ex-General Manager, ITI Bangalore, February 1999.

6 Note to ITI Board, 269th meeting, Item B3, December 1993. Since the unit was being kept open for political imperatives, the company, in view of its difficult financial situation following deregulation, wanted the government to fully compensate it for the losses incurred. But only a small portion of this amount was reimbursed.

7 Of the three, Rae Bareli had the biggest workforce (6241), followed by Naini (4731), and Mankapur (2436). (Source: ITI Corporate Office.)

8 Interview with U.D.N. Rao, ex-ITI Chairman, 18 July 1996.

9 Note from N.V. Shenoi, Secretary, Ministry of Communications to the cabinet, Ref. No. 1.F.(11)/69, 20 October 1973.

10 Interview with M.V. Srinivasa Rao, ex-Executive Director, ITI Bangalore, February-March 1999.

11 Interview with Srinivasa Rao.

12 For want of ‘physical amenities and accommodation’ both in Mankapur as well as the adjoining city of Faisalabad ‘to lodge the French team’, ITI would be obliged to base the headquarters of the project several hundred kilometers away in Lucknow. Note to the ITI Board of Directors, Item B24, July 1983.

13 Investment estimates for establishing the plant at Bangalore had worked out to be much lower, at Rs 1490 million.

14 Initially, infrastructural costs had been fixed at Rs 274.40 million, but following the cost overruns the figure rose to Rs 475.90 million (CAG Report: 6).

15 Interview with Srinivasa Rao.

16 Another study shows that out of the 290 medium and large public sector projects, sponsored by the central government as on March 1987, 186 suffered from cost inflation and 162 from delays (Morris, 1990).

17 Interview with Srinivasa Rao.

18 The government itself was divided on this question as can be seen from the fact that Indira Gandhi divested then Communications Minister C.M. Stephen of his portfolio. Stephen had strongly urged that the first ESS factory should come up in Bangalore.

19 Interview with K.P.P. Nambiar, 23 July 1996.

20 Labour requirements at the Plessey plant in Liverpool were 40-60 per cent lower for the semi-electronic TXE exchanges than the corresponding figure for the old electro-mechanical exchanges. In turn, the digital System X exchange eliminated 90 per cent of the labour used for TXE (Thompson and Bannon, 1985: 12, 73).

21 Between 1973 and 1983, the number of employees in the telecommunications manufacturing industry in the US fell from 140,000 to 124,900; in France from 66,000 to 52,749; and in Germany from 77,590 to 58,580. (Santucci, 1984: 5).

22 Source: ITI Personnel Department. Of the 16,813 people employed at the Bangalore plant in March 1989, 7178 lacked even a high school degree, not to speak of technical qualifications.

23 C-DoT officials claim that between 1985-89 only $40 million was spent in research (Meemamsi:118-19).

24 In advanced countries too, telecommunications administrations and equipment suppliers experienced considerable difficulties in embracing electronic technology. For example, ITT’s inability to successfully adapt its System 12 to the constraints of the US market, even after a delay of two years and spending $150 million, was partly responsible for the giant corporation’s decision to sell off its telecommunications activities (Chapuis and Joël: 570). Likewise, planning failures dogged Western Electric in the US, a consequence of it having misread the speed of the transition from electro-mechanical to electronic systems (Adams and Butler 1999:190-3. For an analysis of Siemen’s botched attempts to make the switch to electronic technology see Locksley (1983: 84, 119).

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Titre Location of ITI manufacturing units (1988)
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Dilip Subramanian

Post-Doctoral Fellow, Centre de recherches interdisciplinaires sur l’Allemagne, Paris (CNRS-EHESS),

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