Govt to implement telecom FDI limit seriously

Govt to implement telecom FDI limit seriously
Sunil Jain

New Delhi, Feb 1: Concerned at the fairly widespread abuse of the foreign investment cap in the telecom sector, the government has decided that it will ensure that these limits are now seriously adhered to. Interestingly, telecom secretary Shyamal Ghosh has written a fairly caustic note to industry secretary Piyush Mankad, who is in favour of further relaxations in these limits.

Ghosh's letter to Mankad, sent out a few days ago, follows a Cabinet note prepared by Mankad's department, asking for further liberalisation in the norms for foreign direct investment (FDI).

`We do realise that telecommunication is an important infrastructure', Ghosh begins, (but) `it is to be remembered that even in developed countries like the USA and France, the extent of FDI permitted is 20 per cent, whereas in our case, it is already 49 per cent. ... It is ironical that the foreign governments and their companies protect their own interests and markets but keep on mounting pressures to open up our market even in this strategic sector more and more.'

In any case, Ghosh further argues in his letter to Mankad, it is not true that FDI will come into telecom only if the investment limits for it are further relaxed. FDI proposals for telecom already add up to around Rs 25,000 crore, and this is based on the current investment ceilings -- so where's the need to hike the limits any further, Ghosh argues.

Ghosh concludes by saying that in the light of what he has said, `we would urge that the recommendations ... be withdrawn.' He goes on to add that if the matter is to be discussed any more, this should be done in a meeting where the telecom ministry is at least represented! In an earlier meeting, on January 11, where the industry ministry's recommendations were discussed, the telecom ministry was not represented.

Earlier, in October, the telecom ministry had argued strongly that the government come out with a clear policy on foreign investment in this sector, which would prevent abuse by private firms. Today, foreign telecom firms are allowed to have a maximum of 49 per cent equity in Indian telecom firms. However, the government had allowed telecom firms to raise money from foreign institutional investors (FIIs) and investment firms as well -- while foreign telecom firms were not supposed to come in through this route, the fact is that some foreign telecom firms have used this loophole to come in using proxy investment firms.

So, while the law allows foreign telecom firms to hold only 49 per cent of the equity of an Indian telecom firm, in several cases, these firms own almost the entire equity. Hutchison, for instance, bought most of the equity of the Mumbai cellular provider Max-Hutch through a holding company structure -- the spirit of the law, however, clearly does not allow foreigners to control telecom companies in India.

This is what the telecom ministry is now trying to fix. The October note of the telecom ministry is quite unambiguous when it says the `Department of Telecom had never been consulted before making such policies, which permit raising of funds through FIIs which do not count against the equity cap. Therefore it is urged ... a clarification be issued that investments by FIIs, through primary or secondary markets, would be counted towards 49 per cent equity cap applicable for the Telecom sector.'