The Telegraph
Since 1st March, 1999
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PC prepares to soothe FDI feathers

New Delhi, Sept. 28: Finance minister P. Chidambaram is drafting the government's reply to the 12-page note CPM leaders have given Prime Minister Manmohan Singh detailing their objections to the proposal to raise the cap on foreign direct investment in telecom beyond 49 per cent.

Chidambaram's reply, which might come up for discussion when the Union cabinet meets tomorrow, would try to soothe the Left's concerns on national security being compromised.

The Left has supported the Intelligence Bureau's argument that communications was a vital security concern and should remain in Indian hands. Its note to the Prime Minister said 'if the security agencies' objections were so clear a year earlier, we are unable to understand why they have ceased to have validity within a one-year span'.

Sources said Chidambaram's reply will concentrate on assuaging these concerns by stating that foreign investments and sale of stock by one shareholder to another foreign owner will be vetted by security agencies to ensure that these have no links to enemy nations.

Besides, the government would ensure that the majority of the directors, including functional directors, would be Indian and nominees of Indian shareholders.

The sources said the finance minister would point to a final safety rider: even if a foreign firm gains control of an Indian telecom company, the government can cancel its licence and take it over.

The Left note had also pointed out that most nations did not allow FDI in telecom beyond 49 per cent. It had specifically quoted the American, Canadian and French rules.

France does not allow more than 20 per cent foreign ownership while Canada allows 20 per cent direct ownership and 33.3 per cent indirect ownership using the holding company route. The US allows just 25 per cent direct ownership.

The note also cited the example of China, where growth in the telecom sector has come exclusively from state-run firms and ownership laws are extremely restrictive.

Chidambaram, the sources said, is likely to underline that several developed and developing nations have already permitted over 49 per cent foreign ownership in telecom. He would argue that the move will not only result in cash flow but also inject an element of competition in what is being perceived to be a market moving towards monopolistic control by two to three large players.

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