Telecom fares poorly on the FDI front

Foreign direct investment (FDI) in telecommunications, one of the top three sectors in terms of attracting FDI since April 2000, fell drastically in April-October 2013, pushing the sector to the bottom of the FDI-inflow list.

According to data published by the Department of Industrial Policy & Promotion (DIPP), the telecom sector received just Rs 197 crore of FDI equity during April-October 2013, just 0.26 per cent of the total FDI inflow of Rs 74,972 crore into the country during the period. Sector-specific data shows telecom received the lowest FDI in April-October 2013.

Between April 2000 and October 2013, the sector accounted for about six per cent of the country’s total FDI inflow; the sector stood third in terms of attracting foreign investors, after services (19 per cent) and construction (11 per cent).

During 2010-11, telecom attracted 7.7 per cent of India’s total FDI; this fell to 5.4 per cent in 2011-12 and 1.35 per cent in 2012-13.

In August 2013, the government decided to increase the FDI cap in telecom to 100 per cent. However, for more than 49 per cent of equity, companies would have to secure an approval from the Foreign Investment Promotion Board (FIPB). 

Earlier, up to 74 per cent FDI in the sector was allowed - 49 per cent through the automatic route and the rest after FIPB approval. Since August 2013, FIPB has approved two FDI proposals in the telecom sector.

Singapore-based SingTel was allowed to increase stake in the long-distance phone business in India; this involved a very small investment. British telecom giant Vodafone received an approval for 100 per cent equity holding in Vodafone India, an investment of Rs 10,141 crore. However, the move is yet to receive a nod from the Union Cabinet.

In September 2013, Economic Affairs Secretary Arvind Mayaram had written to MF Farooqui, secretary in the Department of Telecommunications, expressing concern about the steep decline in FDI in telecom. 

He had asked Farooqui to consider ways to address the issue, as the decline had affected the country’s current account deficit. Since then, a few rounds of discussions on the issue have been held between the top officials.

In his communication, Mayaram had also said most of the top global telecom companies, including Nippon Telegraph & Telephone, South Korea-based SK Holdings, China Mobile Communications, and Deutsche Telekom, weren’t present in India. An analyst with a global consulting firm said 12 of the top 18 telecom companies, in terms of global revenue, weren’t present in India.

“The 2G scam was one of the key reasons why foreign investors stayed away from the Indian market. While the government has allowed 100 per cent FDI, unless new companies enter the market, there may not be much change. But as foreign companies will not require a local partner, genuine interests are building up,” the analyst said, adding it would take a few more quarters to get fresh investors in the sector.

Among existing foreign investors, Norway-based Telenor has 74 per cent stake in Telewings Communications, Malaysia-based Maxis holds 74 per cent in Aircel and Russian conglomerate Sistema has 56.68 per cent stake in CDMA operator Sistema Shyam Teleservices.