Boost to telecom

The Telecom Commission’s endorsement of the proposal to increase foreign direct investment (FDI) in the sector from the present 74 per cent to 100 per cent will give a major boost to the sector and result in major changes there. There is 100 per cent FDI in telecom equipment manufacture now. The FDI limit in services was fixed at 74 per cent in 2005.

The proposal to increase the FDI ceiling in various sectors, including telecom and defence, had recently been made by a ministerial panel. There is a perception that enhanced foreign investment and management will improve the quality of telecom services. But a more important consideration would be the need for more FDI in the economy, which is facing problems of mounting current account deficits and a depreciating rupee. Telecom has been a major area of foreign investment in the last over 15 years. After peaking in the 2007-10 period it has dwindled now, and the proposal,  if implemented, is likely to increase fresh inflow. It is estimated that the decision may lead to about $10 billion worth of investments in the near and medium term.

Indian telecom companies are heavily weighed down by debt, estimated at about Rs 1,85,000 crore. Fresh infusion of funds can ease the financial pressure, with some of them going in for selling their stake in part or full to foreign investors. This would lead to a churning of the sector through acquisitions, mergers and resulting consolidation. However, legal and regulatory policies may have to be streamlined for the purpose. Mobile telephone subscriptions have reached a plateau as of now. To expand connectivity and upgrade services there is the need for introduction of better technologies. Indian companies have found themselves unable to meet the challenge.

The implementation of the proposal is subject to approval by the Union cabinet. An important consideration has to be the security implications of greater or full control of telecom companies by foreign players. Telecom is a sensitive and strategic sector. It is believed that the Union home ministry has some concerns over the proposal in this respect. These will have to be satisfactorily addressed before final clearance is given to the proposal. Disclosures about widespread snooping and surveillance activities all over the world have made this specially important. There should be efficient safeguards and stringent conditions for the operation of services by foreign entities so that national security is not compromised in any way.