| Clear call
New Delhi, Oct. 20: The cabinet today defined the guidelines allowing 74 per cent foreign direct investment in the telecom sector.
The composite foreign holdings, including foreign institutional investors, NRIs, foreign currency convertible bonds, ADRs and GDRs, proportionate foreign investment in Indian companies, will not exceed 74 per cent.
The remaining 26 per cent will be owned by resident Indian citizens or Indian companies in which the FDI does not exceed 49 per cent and the management is with Indian owners.
The foreign investment can be made directly or indirectly in the operating company or through a holding firm.
“It is clarified that proportionate foreign component of such an Indian company will also be counted towards the ceiling of 74 per cent but total holding of Indian public sector banks and financial institutions will be treated as ‘Indian’ holding,” an official statement said.
Effectively, this means that foreign shareholding in public sector banks and FIs will not be counted in the FDI ceiling of 74 per cent, if they pick up equity in telecom companies.
However, such a stake in private sector banks and financial institutions will be considered as foreign equity.
Local telecom firms had been lobbying that the same treatment be extended to private sector banks. The finance ministry, however, did not agree, even though the ministry of communications backed the telecom firms.
The telecom licensee will be required to disclose the status of foreign holdings and certify that the foreign investment is within the ceiling of 74 per cent on a half-yearly basis.
The cabinet had approved the raising of the sectoral cap for FDI in the telecom sector from 49 per cent to 74 per cent in February. However, the decision could not be notified.
The cabinet has deferred a decision on the formation of four subsidiaries of Air-India, Indian Airlines and Airports Authority of India. Information and broadcasting minister S. Jaipal Reddy said the issue has not been referred to a group of ministers
The cabinet has approved the merger of IBP with Indian Oil in a move that will usher in better fiscal management and marketing strategies.