Dot Recommends 100% Foreign Equity Cap

The department of telecommunications (DoT) has recommended raising the cap on foreign direct investment in telecom services to 100 per cent from 49 per cent on a case-to-case basis.

This is in line with the proposal of the department of industrial policy and promotion.

In a note issued on April 28 for the Telecom Commission, DoT said: "It is proposed that for the telecom services sector, the foreign equity cap of 49 per cent be removed and foreign equity up to 100 per cent be permitted.

"Proposals for foreign equity beyond 49 per cent may be considered on a case-to-case basis in the first instance, subject to grant of licence from DoT and adherence to the conditions of licence."

 

"The issue may come up again for discussion before the government," the note added. It pointed out that the commission had approved 49 per cent FDI for e-commerce.

The recommendations sought from the Telecom Commission will go back to the DoT and the telecom minister, after which the plan will be placed before the Cabinet.

The Congress, however, has opposed the proposal, saying no country in the world has permitted such high levels of foreign equity participation.

Under the existing policy, FDI is limited to 49 per cent in basic, cellular, paging and value-added services; global mobile personal communications by satellite; and Internet services.

This is, however, subject to grant of licence from DoT and adherence by companies that are investing and those which are receiving the investments to the foreign equity cap conditions and the lock-in period for transfer and addition of equity, besides other provisions.

Explaining the rationale for raising the FDI limit, the note recalled the views of the department of industrial policy and promotion. It said, "The foreign equity cap of 49 per cent for value-added telecom services has been prescribed with a view to having management control with Indian companies.

"It has been observed that despite the equity cap, foreign investment has been in excess of this limit through investments by FIIs or through preferential allotments, which do not attract the equity cap.

Opening Doors

* The 49% foreing equity cap for value added services was planned to retain management control with Indian companies

* But foreing investment came in excess through FIIs or preference share capital

* Companies routed investments through other JVs to maintain 51 per cnt resident equity

* Lack of capital with resident Indians led to foreign investors subscribing to preference share capital