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Corporate Jul 3, 2013

100% FDI in telecom gets green light despite security concerns

Inter-ministerial body Telecom Commission has approved hiking foreign direct investment limit in the sector from 74 percent to 100 percent, thereby allowing foreign players to buy out existing telecom players without having a minority Indian shareholder in the country. However,the decision comes even as the home ministry warned against removing any restrictions on FDI in certain critical sectors, citing security concerns.

According to a report in the Hindu, the decision will make it virtually impossible for Indian security agencies to cast major discriminatory conditions on the 100 percent FDI-owned telecom ventures of the future.Telecom minister Kapil Sibal was quoted by the Hindu as saying that security concerns surrounding telecom networks would also be addressed with a firm hand.

The telecom sector sat on a debt of Rs 1,85,720 crore in 2011-12.Allowing foreign players access means fresh funds will now flow into the sector as foreign investors will no longer need to partner with Indian investors in order to comply with regulatory requirements.Bharti Group in Airtel, Aditya Birla Group in Idea, Tatas in TataTele, Shyam in MTS, Piramal and Vodafone, Reliance in Reliance Infocomm, and Reddys in Aircel can nowsell in part or full their stake to the foreign investors.

Russian conglomerate Sistema, which runs its telecom business in India under a joint venture with Shyam Teleservices, said dubbed the policy decision a "pro-industry and pro-consumer move".

The Commission has approved raising FDI limit to 100 percent, 49 percent investment can be made through automatic route but FIPB approval is required to increase the level, a senior government official said, adding that the decision will come in force after the Cabinet approval for the same.



The official said that Department of Telecom will send a detailed note to the Department of Industrial Policy and Promotion which forward this proposal for Cabinet approval.

At present, FDI limit in the sector is 74 percent where 49 percent is done through automatic route and rest requires nod from Foreign Investment Permission Board.

The idea behind increasing FDI limit in telecom sector is to help industry get fresh funds to lower financial burden.

According to a presentation by GSM industry body COAI to DoT, the debt of telecom sector stood at Rs 1,85,720 crore at end of 2011-12. This included debt of Rs 93,594 crore from domestic sources and Rs 92,126 crore from external sources.

The Commission also discussed creation of Telecom Finance Corporation (TFC) to address the sector's funding challenges and "sought a detailed project report on it".

The TFC is proposed to be set up on the lines of sectoral finance bodies such as Power Finance Corporation and Tourism Finance Corporation of India.

The proposed TFC is targeting financing Rs 38,000 crore in five-year period.

With inputs from PTI

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