In a bid to attract more foreign investment from telecom giants, India has increased the foreign direct investment (FDI) in telecom service providers to 100 percent from 74 percent.
With this, both basic (wire line) and cellular companies can attract 100 percent foreign ownership.
However, there are conditions. Out of 100 percent, up to 49 percent will be allowed under automatic route and the remaining through FIPB approval.
This means, the government will have a say in allowing 100 percent stake to any foreign company. This route can be used for blocking companies which are against the interest of India.
Goldie Dhama, executive director – Tax & Regulatory Services, PwC India, said that increasing the FDI cap on telecom from 74 percent to 100 percent will have a positive impact on the sector and foreign investors.
“Foreign investors will no longer need to partner with Indian investors in order to comply with regulatory requirements. Foreign investors will be able to infuse equity based on business needs instead of taking the debt route for funding growth which will reduce debt burden and improve profitability,” Dhama added.
Aircel welcomed the government decision to increase the FDI limit to 100 percent in telecom service providers.
Aircel on Wednesday said the move to increase FDI cap of 74 percent to 100 percent is welcome as it will help the industry to bring in more FDI to fund the high Capex demands of this sector especially in areas to enhance coverage, and launch new 3G and BWA services.
“This will undoubtedly have a huge benefit for our customers and higher license fee for the government,” said Aircel in a statement.
Sistema Shyam TeleServices on Tuesday welcomed 100 percent FDI in telecom.
“The much needed policy decision is a very positive development for the entire industry. With fresh foreign direct investments coming in, this would further catalyze growth and also the process of proliferation of telecom services across the country,” said MTS India spokesperson.
Who will Benefit?
Besides Sistema of Russia, leading companies such as DoCoMo of Japan, SingTel of Singapore, Maxis of Malaysia, Vodafone plc of the U.K., Axiata of Malaysia, Telenor of Norway, etc. will benefit from the move.
Companies such as Videocon will be in a better position to attract foreign investors to its telecom venture that scaled down after the February 2012 Supreme Court order.
Telecom giants such as AT&T, Verizon, MTN, Qatar Telecom, etc. could look / relook India as an investment destination.
Since Indian telecom penetration and broadband reach is well below many foreign nations, there is huge potential to be tapped. GSM operators have 671.13 million mobile users in India as of June 2013. Broadband subscribers stand at around 15 million.
Industry analysts say that the increase in FDI may not immediately result into flood of dollars into India. The current telecom market conditions are viable for attracting huge investments.
