Direct Investment Rider For 74% Fdi In Telecom

The government is planning to make it mandatory that foreign companies invest directly in the operating company when picking up equity in the domestic telecom sector, while allowing them to increase stake to 74 per cent from the current cap of 49 per cent.

A government note has already been prepared in this regard and sources say this will go a long way in plugging the loophole used by foreign telecom companies to skirt the sectoral cap limit.

At present, telecom multinationals tend to bypass the sectoral cap limit by investing indirectly in the operating company, picking up equity in an investment company which in turn holds equity in the former.

As the government considers an investment company Indian as long as up to 51 per cent is held by domestic promoters, most multinationals use this route to gain indirect majority control of the telecom businesses which they owned.

Meanwhile, the move to bypass the sectoral cap limit has raised concern in the home ministry which has suggested that the rules be changed in lines with that of foreign direct investment in the insurance sector.

The note has also suggested another alternative which is that the government continue with the existing sectoral cap policy and in fact make it more stringent by including