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Wednesday, 03 July 2013 01:20
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100% FDI will bring in good money, benefit the sector


The Cabinet has yet to decide on the matter and the home ministry will probably put up a tough fight to defend what it argues are valid security concerns, but the full Telecom Commission has done well to clear 100% FDI in telecom, up from the current 74%. While this will not be of great help to some of the bigger Indian players, it will make a huge difference to the Indian arms of global firms who had no option but to enlist local partners—partners who have nothing to do with telecom but who were required to fulfil the conditions of the law that said a 26% local shareholding was required. Apart from the fact that the law created massive arbitrage opportunities for Indian investors, it created a problem in that, when the firm wanted to expand its business, the Indian partner often did not have the requisite funds to chip in. Which is why the proposal to allow 100% makes such eminent sense, especially at a time when, with the advent of 4G and other technologies, the sector could once again become a big magnet for both growth as well as FDI.

As for the home ministry’s security concerns, they appear overblown since the same security conditions that apply to a 100% Indian firm apply to one that is 26% Indian-owned one or even a 100% foreign-owned firm. There is little that changes in terms of a telco’s adherence to rules if a local Indian—one who, more often than not, is nothing but a financial investor with nothing to do with day-to-day running of the telco—owns 26% of the firm. If the home ministry decrees, and the Cabinet clears a proposal that, for instance, 30% of all equipment that is bought by telcos will be made in India—or 100% of certain types of equipment—this is something that will apply to all telcos. Or if the government decides that all CXOs will be Indian—another form of jobs for the boys—that again is something that will apply to all telcos. If the concern is that 100% FDI on the automatic route would allow even undesirable elements to make inroads into India’s telecom sector, stringent security-specific approvals could be called for in cases where 100% FDI is to be permitted. The short point is that when 74% FDI is allowed anyway, going all the way up to 100% isn’t going to compromise India’s security in any way.


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