Telecom FDI hike in phases

Prime Minister tries to resolve differences ahead of Cabinet meeting.

Stung by the criticism by the Left parties and the restrictive conditions proposed by the communications ministry, the government is likely to go in for a phased increase in the foreign direct investment (FDI) limit in telecom. Government sources today ruled out an immediate hike in FDI to 74 per cent as announced in the Budget.

One option that is being discussed in government circles is to allow 51 per cent FDI from 49 per cent now, which could be scaled up gradually to 74 per cent over a period of 18 months. The overall foreign investment cap, including foreign institutional investment, may, however, be increased to 74 per cent.

Two days before a crucial Cabinet meeting, which is expected to take up the issue, Finance Minister P Chidambaram first met Communications and IT Minister Dayanidhi Maran.

Both of them, along with Planning Commission Deputy Chairman Montek Singh Ahluwalia and Telecom Regulatory Authority of India Chairman Pradip Baijal, later met Prime Minister Manmohan Singh.

Maran and Montek, who is heading a committee on infrastructure, made a detailed presentation for the Prime Minister.

While the Prime Minister tried to sort out the differences between the finance and the communications ministries, the sources said what could have tilted the balance in favour of a phased increase in FDI was the unrelenting criticism by the Left parties which had been demanding a postponement of the decision.

The department of telecommunications (DoT) had earlier proposed that the Indian partner in a telecom company should have 50 per cent board representation even if it held only 26 per cent in a venture. Besides, it proposed that the chief executive should be an Indian national. The finance ministry had opposed the move.

The DoT softened its stance later and proposed that the limit be increased to 74 per cent with a clause that the foreign partner divest its stake to 49 per cent within seven years.

The Left parties have cited security concerns as the primary reason for their opposition. They have cited the case of the US where foreign investment is capped at 25 per cent. Also, only two private players "" Hutch and Bharti "" stand to benefit, the Left parties said in their memorandum submitted to the government. FDI, they said, would not improve tele-density in the country.

Speaking to reporters after his meeting with Chidambaram, Maran did not want to comment on the FDI issue and said he discussed some concessions to be incorporated in the broadband policy to be announced shortly.

Tug of wire

DoT's stance
Citing intelligence reports, it proposed 50% board representation for the Indian partner even if it held 26% stake. Also, the CEO should be an Indian national

North Block view
The finance ministry opposed the move. It's view was that FDI is the most stable form of investment and, therefore, more of it should be encouraged

Left turn
The Left parties have cited security concerns for their opposition. They say that in the US foreign investment in telecom is capped at 25%

Compromise
Centre may allow 51% FDI from 49% now, to be scaled up to 74% over 18 months. The overall foreign investment cap may be increased to 74%