The Hindu Business Line : Making a case for FDI hike in telecom

THE elaborate defence put up by the Union Finance Minister, Mr P. Chidamabaram, through a missive and a note justifying the United Progressive Alliance (UPA) Government intention to increase the foreign direct investment (FDI) cap from 49 to 74 per cent in the telecommunication is a timely reminder to the Left parties to let the coalition-Government go ahead with its serious reform business.

Mr Chidambaram told the Left parties on the eve of the Left-UPA meeting here on October 12 that "most countries have permissive FDI regime as opposed to restrictive regime and the choice of FDI regime has to be based on the country's own requirements which in India's case are our security concern and the need to attract greater investment".

While ownership has little correlation with vulnerability as security clearance for foreign partners and critical management by resident Indians could take care of any apprehensions on this score, the Finance Minister said neighbouring countries such as Sri Lanka, Bangladesh and Pakistan do not put any fetters on FDI in the telecom sector. Besides, the Tenth Five Year Plan working group on telecom sector has estimated the investment requirement for this sector at a whopping Rs 1,60,000 crore.

Mr Chidambaram aptly counselled the Left that after the scorching pace of growth in the telecom sector with mobile phones catching up all across the county regardless of the status of holders but serving them well in their small chores, "any slowing the growth momentum at this stage would lead to losing several direct and indirect benefits of the telecom growth".

The Finance Minister also mentioned that restrictions on mobile services even in developed countries are more due to spectrum availability rather than any ideological or security considerations.

He reeled out the rewards of increasing liberalisation in this sector with FDI resulting in better spurs for technology transfer, improved management and in lower prices for users.

The points highlighted by Mr Chidambaram were not discussed in detail at the Left-UPA meeting with CPM Politburo Member, Mr Sitaram Yechury, simply stating that they would pore over the note and the issue would be discussed again at the next coordination meeting towards the end of this month.

Thus the pattern of confabulation, consultation and procrastination is all proceeding at a pitiful pace, much to the dismay of investors in general and the potential beneficiaries in particular.

Did not the Union Minister for Communications and Information Technology, Mr Dayanidhi Maran, tell in New York only early this month that the Government is committed to provide "the right policy framework" for the telecom industry?

More recently, the World Trade Organisation (WTO) in its 2004 world trade report analysing the theme "Exploring the linkage between the domestic policy environment and international trade" elegantly captured how effective telecommunications provide a low-cost channel for searching, gathering and exchanging information which is a key input in all economic activities.

For many industries, the telephone is the primary point of selling and the Internet is an increasingly important and sales for some industries with e-commerce and electronic data interchange (EDI) for foreign trade operations coming in a big way in India.

WTO said that it is now possible for countries that have lagged in economic and technological development to switch over to the most recent technologies at relatively low costs of adoption.

In Africa, 95 per cent of mobile lines were GSM in 2001, well above the world average of 70 per cent.

A particularly noteworthy aspect but which many in their myopia miss is that the digital divide is narrower and narrowing faster than the income gap between rich and poor countries, the WTO said adding that while GDP per capita grew at almost the same pace in low-income and high income countries during the period 1995-2001, the number of mobile phones per 100 inhabitants grew almost twice as fast in low-income countries.

Available trends in India too suggest that mobile users are going to outnumber fixed-line users before long, presaging the tangible benefits this confers on a large number of people.

WTO says that an analysis of the relation between service supply and the extent to which foreign entry is restricted finds that the more restricted is foreign entry, the lower the mobile telephone density.

"It is also worth noting that the more open market-based mobile services have provided a narrower international digital gap than the state-controlled fixed-line services," WTO said.

It is time that opponents to hike in FDI cap in telecom sector recognise these simple but valid points so that the Indian economy is not condemned to remain mired in high-cost mode in perpetuity, say policy analysts.

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