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Friday, Jul 09, 2004

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FDI push on telecom

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Mr Asim Ghosh, MD, Hutchison India

LESS than six months ago, when the mobile telecom industry set an ambitious target of 100 million subscribers over the next couple of years, it had projected an FDI (foreign direct investment) requirement of Rs 50,000 crore. One of the key facets for achieving this growth target was the need to hike the ceiling on FDI in the telecom sector from 49 per cent to 74 per cent. Under the earlier NDA government, security concerns and differing opinions among different ministries ensured that this proposal never took off.

In the 2004-05 Budget, the Finance Minister has finally approved the blockbuster move of raising the FDI ceiling from 49 per cent to 74 per cent. This proposal is even more encouraging as the Finance Minister has gone the whole hog in hiking the FDI ceiling, rather than restricting the hike upto 74 per cent only to the FIIs. The key beneficiaries of this move will be Bharti Tele-Ventures, Hutchison and Idea Cellular. It will straightaway have a two-fold impact on the telecom industry:

Raise finances for expansion: Practically all the mobile players are poised for a substantial increase in their mobile infrastructure. As over 1.5-million subscribers are being added by both GSM and CDMA players combined, funding for infrastructure may turn out to be a key constraint. The actual FDI flow into the telecom sector shows that it peaked in 2001 with an inflow of Rs 3,970 crore and has declined sharply to Rs 1,081 crore in 2002 and further to Rs 301 crore in 2003. Clearly, this trend may be reversed by this move.

Mr Sunil Mittal, CMD, Bharti Group

As Mr. Sunil Mittal, CMD, Bharti Group says, the increase in foreign investment will give a major boost to the telecom sector that is capital intensive in nature. Mr. Asim Ghosh, MD, Hutchison India, added that it is a good move that will result in a greater flow of funds, which will boost teledensity. Mr Vikram Mehmi, Cheif Executive Officer, Idea Cellular said, "This will ensure that adequate resources are available for the Indian cellular industry to fund its aggressive growth plans."

Flexibility in corporate structure: The corporate structure that had been fairly complex in the past will now be made much simpler after these norms are put in place. As Mr. Sanjay Mehta, telecom analyst, Ernst & Young, said, "This FDI decision will simplify current foreign equity holding structure, make it more transparent by making it single layered instead of a multi-layer structure."

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