In what is believed to be a major boost to the telecom industry, the Indian government has raised the cap of Foreign Direct Investment (FDI) in the sector to 100 percent from 74 percent.
Earlier, out of the 74 percent limit, up to 49 percent was allowed through automatic route and remaining via the Foreign Investment Promotion Board’s (FIPB) approval. Now, out of the 100 percent FDI, 49 percent will be done through automatic route and the rest has to be done through FIPB approval route.
The move is likely to help get more foreign investment in the telecom sector, which has been reeling under severe financial burden for a long time. The decision will also encourage the foreign partners in telecom companies to increase their stake or gain complete ownership.
Moreover, the government has rejected security concerns over the foreign companies o having 100 percent stake in their Indian venture. According to Union minister Kapil Sibal, security concerns are only involved with the equipment manufactured abroad.
He pointed out a new policy called Preferential Market Access (PMA) is in the works, and is likely to make it mandatory for companies to use 65% of all equipment which is made indigenously.
“The security issue is not on the operators’ side, it is not an entry barrier. Real issues (from security point of view) are the chips, the routers being imported. Whether a foreign telco has 74 percent stake, as is allowed at present, or 100 percent ,it does not alter the security issue,” Firstpost quotes Sibal as saying.
Source: Economic Times, Firstpost