Telecom firms get time to sort out FDI issue

Govt aims to ease 26% Indian holding norm

The government is likely to provide telecom companies time to comply with the requirement of 26 per cent resident Indian holding as part of the exercise to ease the rules.

Senior government officials told Business Standard that the holding of Indian public sector banks would not be included in the overall 74 per cent foreign investment cap and is also likely to be treated in the resident holding.

The detailed rules are being prepared by the department of telecommunications and the Foreign Investment Promotion Board housed in the finance ministry.

The norms would be eased following representations from the telecom companies.

While the changes are not expected to go to the cabinet again, officials said the Prime Minister's Office could be asked to intervene to issue instructions to the DoT for relaxing the norms.

In February, the Union cabinet had cleared a proposal to raise the foreign investment cap in the telecom sector from 49 per cent to 74 per cent.

But safeguards had been proposed following concerns expressed by security agencies and the Left parties.

The increase in FDI limit has therefore still not been notified.

The DoT had also suggested that the government allow people of Indian origin to be appointed to top management positions.

The proposal has, however, not found favour with other ministries.

As per the proposal cleared by the cabinet, resident Indians are to account for a majority of the board positions including the chairman, managing director and chief executive officer.

Other key positions like the chief technical officers and chief financial officers also have to be Indians, the cabinet had decided.

Officials said that companies should be given time to comply with the 26 per cent resident holding norm as they may not be able to comply with the restriction overnight.

Also, it could be difficult for companies to monitor decisions by individual shareholders who may sell their shares in a company at any point of time.

The 26 per cent holding would include the equity held by Indian citizens or an Indian company and the foreign investment in the Indian company will be counted in the 74 per cent cap.

Also, at least one Indian promoter has to at least 10 per cent equity of the company.

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Telecom tangle

• Holding of Indian public sector banks not to be included in the overall 74% foreign investment cap
• Prime Minister's Office could be asked to intervene to issue instructions to the DoT for relaxing the norms
• Detailed rules being prepared by the DoT and the Foreign Investment Promotion Board
• Companies finding it tough to monitor decisions by individual shareholders