The Telegraph
Since 1st March, 1999
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FDI punch, security pacifier to Left
- Plainspeak on telecom

New Delhi, Oct. 12: Prime Minister Manmohan Singh and finance minister P. Chidambaram presented a note to the Left tonight, making it clear they will go ahead with the plan to raise the foreign investment limit in telecom.

In his budget speech, Chidambaram had proposed raising the cap in the sector from 49 to 74 per cent.

The Left leaders remained unconvinced and argued India should offer only 25 per cent of its telecom firms' equity to foreign investors in accordance with WTO commitments.

'We still feel there is no need to go beyond WTO commitments without reciprocal opening up by other developed nations,' said RSP leader Abani Roy, who is a member of the Left-United Progressive Alliance coordination committee. 'At the current FDI cap of 49 per cent, we have already exceeded our commitments.'

The note ' authored by Chidambaram and endorsed by Singh ' trashes security concerns and says the only causes for concern in opening up telecom are spectrum (bandwidth) availability and the need to whip up hard currency investment.

'Across the world, restrictions on mobile services are mostly due to spectrum availability rather than ideological or security considerations,' Chidambaram wrote.

The note argues that 'ownership has little correlation with vulnerability to illegal access to information by hostile countries'. It points out that the Left knows Echelon, a global electronic surveillance network, 'has been monitoring Indian telecommunications for decades'.

Chidambaram said a more appropriate response would be to ask for security clearance of foreign partners and make it mandatory for resident Indians to hold critical management and technical positions in telecom firms.

The government has prepared a cabinet note ' delayed to convince the Left, a key ally ' which says FDI in telecom beyond 49 per cent will be vetted by the Foreign Investment Promotion Board and security agencies will ensure 'that investment is not coming from unfriendly countries'.

Moreover, it states a 'majority of directors on board (of telecom firms) shall be nominated by Indian shareholders'.

As another safeguard, it states: 'In case, in spite of above safeguards, management control gets transferred in the hands of foreign promoters, the licence(s) granted shall be deemed cancelled...'

But the Left is unconvinced. 'Canada allows only 46.7 per cent, of which only 20 per cent can be invested directly. Similarly, ...China has committed to open up only up to 49 per cent stake in telecom firms to FDI by 2007. Malaysia allows only 30 per cent FDI and the US only 20 per cent on radio licences. There has to be more to these decisions than spectrum availability,' Roy said.

But what could tilt the balance is Chidambaram's argument that as the country needs to invest Rs 160,000 crore in the telecom sector by 2007, 'FDI becomes a key resource... slowing the momentum at this stage will result in losing several direct and indirect benefits of telecom growth'.

He also argued that even if domestic capital of this magnitude were to become available, which is doubtful, it would certainly be at the cost of investment in other sectors where foreign investment may not enter as readily.

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