New norms for 74% FDI in telecom issued

The government today issued guidelines for increasing the foreign direct investment ceiling for telecom sector from 49 per cent to 74 per cent. Telecom operators have been given four months to comply with the new guidelines.

The notifications have been issued following the Cabinet's approval on October 21 for allowing 74 per cent foreign investment in basic and mobile phone services companies. The Cabinet had first cleared the proposal in February, but operators and industry bodies had sought clarifications on foreign equity of the PSU banks being included in the cap.

 "The total composite foreign holding, including but not limited to investments by the FIIs, the NRIs, the FCCBs, the ADRs, the GDRs, convertible preference shares, proportionate foreign investment in Indian promoters investment companies including holding entities, will be referred as FDI and will not exceed 74 per cent. However, the foreign component in the total holding and the FIs will be treated as Indian holding," the notification said.

The remaining 26 per cent are to be owned by resident Indians or by an Indian company. The government has said the majority of directors on boards of telecom companies with foreign stake, and the senior management of such companies, including chairpersons, managing directors, chief executive officers, chief technical officers and chief financial officers, should be "resident Indian citizens".

The department of telecommunications has been given powers to enforce the new norms and has been authorised to cancel the licence of operators in cases of defiance by companies, the notifications said. The DoT can also restrict the licensee company from operating in any "sensitive" area.

Operators will not be permitted to share information about their subscribers to outside agencies and calls made within India cannot be routed through networks in other countries. Similarly, no foreign company can undertake the maintenance and repair of telecom networks in the country. Details of infrastructure and network diagrams are also barred from being transferred outside India.

On matters of remote access, the notification states, this facility will not be provided to any equipment manufacturer or any other agency outside the country for maintenance or repairs by the company except in case of "catastrophic software failure".

In addition to that, the approval of the Foreign Investment Promotion Board will be required for FDI in the licensee company, and the FIPB has powers to stop investment from the unfriendly countries, the notification said.

In a bid to address security concerns, operators are also required to provide "blind access of their network and other facilities like books of accounts to the security agencies".