NEW DELHI: The Department of Telecom (DoT) has decided to instruct state-run telcos BSNL and MTNL to bar Chinese telecom equipment vendors from participating in their tenders, sources said. The DoT is also set to cancel an earlier tender and rework it to exclude Chinese bidders.

"The tender will be cancelled now and floated again after we rework it," an official source said, adding that a similar communication may be sent out to private telecom players too. The development comes just a day after a violent clash between India and China in Ladakh escalated tensions between the two countries drastically.

The BSNL board had earlier approved as its official vendors Chinese equipment manufacturer ZTE along with the Finnish communications giant Nokia for the proprietary migration of around 50,000 2G and 3G sites into 4G-capable units for around Rs 2,300 crore. But the DoT had not given the go-ahead before this week's flare-up at the border and no approval is likely to be forthcoming now.

The Centre's move to exclude Chinese vendors from tenders floated by state-run telcos will affect major Chinese firms like Huawei and ZTE, with future BSNL contracts likely to remain out of reach. The state-run telco, for instance, has another active tender initially floated in March -- whose deadline has been extended to June 24 -- for the installation of 7,000 new units in Mumbai and New Delhi.

While the loss of business from PSU telcos is likely to hit Chinese vendors hard, an extension of such a ban to the private sector may make the pain significantly more substantial. Private players like Bharti Airtel and Vodafone Idea both work with Chinese telecom vendors ZTE and Huawei alongside other major European vendors.

Such a ban would also exclude Chinese firms from tapping into the lucrative 5G network rollout expected to happen over the next few years. Chinese firms already account for over a quarter of India's Rs 11,500-12,000 crore telecom equipment market, with the rest spread between Nokia, Samsung, Ericsson and others.

"There have been concerns for a while that China does not allow Indian telecom equipment imports though we do. This needs rectification, because Indian telecom equipment players are being affected by highly subsidised Chinese products," an official said, adding that discussions will likely be held with private players on ways to reduce dependence on Chinese goods.

However, barring Chinese players from the market could also significantly increase costs for Indian telecom service providers, analysts note.