FDI cap in telecom hiked to 74 pc

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Our Bureau

New Delhi, Feb. 2

THE Union Cabinet today went ahead with the decision to raise the foreign direct investment (FDI) limit in the telecom sector to 74 per cent from the current ceiling of 49 per cent. Certain conditions have also been specified while allowing the increased FDI cap, primarily to address the concerns of the security agencies and the Left parties.

The move will allow companies such as Bharti Tele-Ventures and Hutchison Essar to "regularise'' the foreign holdings in their companies which have reached the levels of 67-69 per cent of their equity.

At the industry level, the decision will facilitate the inflow of much-needed capital since the telecom business is growing at more than 30 per cent annually, especially the mobile sector which has doubled in size over the last two years.

Briefing presspersons after the Cabinet meeting, the Finance Minister, Mr P. Chidambaram, said, "The move is aimed at attracting more investments in the capital intensive telecom sector and also to make the system transparent. Two companies already have foreign investments in excess of 49 per cent."

In order to address the concerns raised by the security agencies and the Left parties, the Cabinet has put in place certain conditions "to safeguard the national interest."

The conditions specify that the majority directors on the board including the chairman, the managing director and the chief executive officer shall be resident Indian citizens.

The 74 per cent holding will include all foreign investments made directly or indirectly by Foreign Institutional Investors, Non-Resident Indians, Foreign Currency Convertible Bonds, depositary receipts and convertible preference shares. The remaining 26 per cent equity will be held by Indian citizens or an Indian company.

The foreign investment in such an Indian company will also be counted towards the ceiling of 74 per cent. A single Indian promoter shall hold at least 10 per cent equity of the licensee company.

Key positions such as chief technical officers and chief financial officers will have to be held by Indians. To ensure monitoring of the network, the companies will not be allowed to transfer sensitive information relating to subscribers and accounts to destinations outside India. These conditions will also be applicable to the companies operating telecom service with the existing FDI ceiling of 49 per cent.

Despite the conditionalities, the industry has hailed the decision. Mr Rajan Bharti Mittal, Joint Managing Director, Bharti Tele-Ventures Ltd, said, "With increased foreign capital now being allowed, the Indian telecom industry would get the much-needed impetus to deliver on its target of reaching between 200 and 250 million-phone connections over the next three years. From an end customer point of view as well, it would also drive faster accessibility to what the world has to offer in the latest in telecom technology.'' Bharti has foreign investments primarily from SingTel and Warburg Pincus.

Mr T.V. Ramachandran, Director-General, Cellular Operators Association of India, said, " Indian communications sector needs nearly Rs 1,60,000 crore by 2007, of which only Rs 30,000 crore is expected to come from the domestic industry. The move to increase the FDI cap will bring in investments which will boost the economy."

The telecom sector has received FDI worth Rs 10,000 crore in the last 15 years, of which 26 per cent has gone to the cellular sector. Apart from cellular and long distance sectors, analysts expect greater foreign participation in V-Sat, Public Mobile Radio Trunked Services and Global Mobile Personal Communications Services which until now had an FDI cap of 49 per cent.

(This article was published in the Business Line print edition dated February 3, 2005)
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