The government is likely to raise the foreign investment limit in the telecom sector from 49 per cent to 74 per cent but limit foreign direct investment to 49 per cent. The balance 25 per cent stake can be offered to foreign institutional investors by telecom companies.
The Centre is also expected to go slow on raising the foreign investment ceiling in the insurance sector from 26 per cent to 49 per cent announced in the Budget.
IB opposed telecom FDI limit hike: Shourie
The move follows an assurance by Prime Minister Manmohan Singh to the Left parties that the increase would take place only after a consensus was evolved.
In the case of the aviation, however, the government proposes to push through the increase in the FDI cap from 40 per cent to 49 per cent. Senior government sources said this would be the trade-off between the Congress and the Left parties.
While the government would need to amend the Insurance Act, 1938, to raise the limit in the insurance sector, in the case of telecom and aviation, the increase in foreign investment limits could be through executive notifications, government sources told Business Standard.
The move to restrict FDI in telecom comes in the wake of apprehensions by security agencies that 74 per cent FDI would result in transfer of management control into foreign hands.
Even the National Democratic Alliance government could not push through the proposal due to concerns expressed by the Intelligence Bureau and other agencies.
Finance Minister P Chidambaram has already received an inter-ministerial committee report on liberalising the FII limits in specific sectors like telecom, aviation and banking.
It has, however, recommended stringent disclosure norms by FIIs to ensure that their holding could not be sold or transferred to those contributing to the FDI component.
While the committee has suggested that FII holdings be treated as distinct from FDI, it has made exceptions for the telecom and insurance sectors.
In the telecom sector, the committee has gone by the recommendations of the group of ministers set up by the NDA government, which said that the composite foreign holding limit may be raised to 74 per cent.
By setting a foreign investment limit, instead of separate caps on FDI and FII, the government intends to leave it to private players to decide the mix in the insurance sector.
"This is a very transparent and investor-friendly mechanism. The government is required to only specify the overall cap and ensure that it is not breached," an official said.
© 2025