New Delhi, Sept. 26: Foreign direct investment in the telecom sector is likely to be hit by the current low penetration of telecom services and the downturn in the global economy.
A report prepared by Federation of Indian Chambers of Commerce and Industry (Ficci) and global consultancy firm KPMG has called for immediate attention to improve the regulatory framework to secure funding at internationally competitive rates. It also urged the government to formulate policies that will help enhance the bottomline of operators and to raise the FDI limit and exploit the wide range of funding options by the operators.
FDI in the telecom sector stood at Rs 8,591.76 crore till March 2002. Recently, AT Kearney in its report had stated that India’s position as the most favoured investment destination has dropped by eight spots with a 20 per cent decline in likelihood of receiving FDI. It put India 15th on the list of FDI destinations for telecom investments.
The telecom sector had been asking for a hike in the FDI limit for the last few years. Currently, the FDI ceiling in various sub-sectors of telecom varies from 49 per cent to 100 per cent. There is no FDI cap on telecom equipment manufacturing, telecom services like internet (without gateways), infrastructure providers, email, voice mail and IT-enabled services.
The report also pointed out the need to find a quick solution to the vexed interconnection problem, allocation of spectrum, number portability, carrier pre-selection and deregulation.
Management control crucial
Union communications and information technology minister Pramod Mahajan said today that the issue of management control—whether it should remain in Indian hands or not—must be settled before FDI cap in telecom sector was raised from 49 per cent to 74 per cent.
Inaugurating the second Global Telecom Summit 2002, Mahajan said he was in favour of increasing the upper limit and there was also a consensus among the group of ministers concerned but the crucial issue was of management control.
He said the moment a company’s equity goes beyond 50 per cent, it will have management control, adding, the question of raising the cap was not an “economic issue” but it was whether management control should remain in Indian hands or not.