Foreign direct investment in telecom sector

By

Arti Goel
MIB (2005-2007)
IMT, Ghaziabad
 

The liberalization measures post-1990 have changed with foreign investments radically, now portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged. During the decade of the nineties, the 'ceilings' on FDI in different sectors were progressively raised. In 2001, 100 per cent foreign investments were allowed in several industrial sectors. Also, 100 per cent Foreign Direct Investment is allowed in almost all the infrastructure sectors.

FDI can enter India through two possible channels:

* The automatic route under which companies receiving Foreign Direct Investment need to inform the Reserve Bank of India within 30 days of receipt of funds and issuance of shares to the foreign investor

* For sectors that are not covered under the automatic route, prior approval is needed from the Foreign Investment Promotion Board (FIPB).

The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positive for the sector , as it require investments of Rs 700 –900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world.

Their is  restrictions related to remote access, transfer of network information outside India and international transit routing of Indian traffic. It has been decided to enchance the FDI in telecom services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast, public mobile, radio service & gmdcs.

DOT will have the authority to restrict the license company from operating in any of the sensitive areas of the country.

Effect of FDI in telecom

• Telecom service at Subsidized prices
• FDI inflows will allow multiple benefits such as technology transfer, market access and organizational skills.
• In India where 70% of population still resides in rural areas, there is a dire need of infrastructure in telecom, which FDI can provide.
• Foreign currency flowing in the country
• Harmonious relationship with country from which foreign investment is being made
• There will be increase in competition with local players, which will benefit consumers
• It will have a multiplier effect
• Telecommunication facility at reasonable price, affordable to many
• More technological inflow, will improve voice & data quality
• Free flow of capital is good for Indian consumer

Doubts in the new FDI regulation

• According to the policy, majority of directors and board members including, chairman, MD and CEO will be resident of India.
• foreign firm owns 74 per cent of the Indian telecom, it still has to appoint the chairman, managing director and CEO "in consultation with serious Indian investors", and a serious Indian investor is defined as someone who owns at least 10 per cent of the firm's equity - why even bother to invest in India if someone else decides who's going to run the firm?
• At a time when the country's police/investigative arms find it impossible to trace people at times, telecom firms "must provide traceable identity of their subscribers".
• The policy says "No accounting information will be send outside India" imagine a foreign invester wants to check the usage pattern, clouding, he will not be able do it so India will be seen as a black hole for foreign BPO.
• It also says that network cannot be managed from overseas & the ironical part is that India is fighting tooth and nil to win Contract to maintain global network out of India

No wonder it has been one year since the announcement of an increase in FDI limits in telecom from 49% to 74% has been made , and there are still no taker.
 

Arti Goel
MIB (2005-2007)
IMT, Ghaziabad
 

Source: E-mail December 3, 2006

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