DoT no to Parekh panel's FDI proposal

The department of telecommunications (DoT) has rejected the proposal of the high-level committee on the financing of infrastructure to raise the ceiling on foreign direct investment (FDI) in this sector to 100 per cent, from the existing 74 per cent.

DoT has told the Empowered Group of Ministers (EGoM) on telecom, headed by Finance Minister P Chidambaram, that this should not be done, since telecom is a security-sensitive sector. When the FDI ceiling was raised to 74 per cent in 2007, the ministries of home and defence had opposed it. DoT said it was still working on the recommendations made at the time to address this worry.

It has also contended that the Cabinet has just raised FDI levels for carriage services in the information and broadcasting sector to bring it on par with the one in telecom.

The committee is chaired by Deepak Parekh, chairman of the Housing Development Finance Corporation. In its interim report, it had said auction-based investment would require large infusion of equity by companies seeking to establish a pan-India presence. It has argued the present limit of 74 per cent already allows foreign investors to exercise complete control over their telecom companies. In such a situation, finding Indians willing to invest large sums representing the remaining 26 per cent and yet take a minority stake constitutes a significant constraint in getting competitive foreign investment at the right valuation.

In other infrastructure sectors such as power, roads and ports, 100 per cent FDI is permitted. The committee, therefore, has said the move is needed to get more competitive offers in the proposed auctions and also enhance FDI. Appropriate safeguards could be built in to address security concerns.

The panel has also recommended that the 2G spectrum licencees be allowed external commercial borrowing (ECB). On this, DoT has said it has requested the department of economic affairs to look into the request from prospective bidders for relaxation of the ECB norms to facilitate funding.

The Parekh report has also recommended that the Rs 20,000 crore corpus collected for the Universal Service Obligation Fund be used for subsidising telephone connections for the rural population still not uncovered.