The Hindu Business Line : FDI inflow in telecom plummets 97%

IS foreign direct investment in the telecom sector drying up? The actual inflows plummeted 97 per cent this year, at just around Rs 33 crore, against Rs 1,081 crore the previous year.

According to official sources, though it was widely expected that the Government would increase the FDI limit in telecom services, an announcement is still pending because of security apprehensions being raised by the defence agencies. As a result, most of the investors continue to adopt a wait and watch policy, even though the unified access service licence regime has been introduced to remove the ambiguity regarding CDMA cellular services.

The sources noted that this year had recorded the worst performance with respect to FDI inflows in telecom sector since 1995. The total amount of FDI inflows in the past decade amounted to Rs 9,595.24 crore, with 2001 registering the highest of Rs 3,970 crore. Since then there has been a gradual decline, and the current fiscal turned out to be the worst, they noted.

The Department of Telecommunications undertook a study to identify the possible reasons for the near negligible inflows. Some of the factors affecting the inflow of FDI were analysed and the findings are not surprising.

According to the DoT analysis, frequent announcements for changes in the policies by various agencies and long gaps between announcements and actual implementation/non-implementation of various decisions have hampered the inflows.

"A steering committee of the Planning Commission had recommended FDI up to 74 per cent in basic and cellular services in August 2002. The recommendations of the Steering Committee have never been rejected nor accepted leading to uncertainty. Since August 2002, FDI inflow remained negligible due to the fact that investors are hedging their investments for want of clarity on the issue. The recently constituted Group of Ministers had recommended allowing FIIs investment beyond sectoral caps but within an overall ceiling of 74 per cent. These recommendations are yet to be accepted," DoT has noted.

As per the present FDI policy in basic, cellular mobile, national long distance, international long distance, value-added service, and global mobile personal communications by satellite, FDI is capped at 49 per cent (under automatic route) subject to grant of licence from DoT and adherence by the companies to the licence conditions for foreign equity cap and lock-in period for transfer and addition of equity.

FDI up to 74 per cent is permitted, subject to licensing and security requirements, for Internet service (with gateways), infrastructure providers (category-II) and radio paging service. FDI up to 100 per cent is permitted in respect of Internet service providers not providing gateways, infrastructure providers providing dark fibre (IP Category I), electronic mail, and voice mail. In manufacturing sector 100 per cent FDI is permitted under automatic route.

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