DoT rules out 74% telecom FDI through automatic route

The department of telecom has categorically ruled out permitting 74 per cent foreign direct investment (FDI) in the telecom sector through the automatic route. The department has cited national security concerns as the reason for this stance.

The DoT has said this in reply to the recent report by the Ratan Tata-headed Investment Commission on boosting investments in the country.

On the suggestion of "allowing 74 per cent FDI under automatic route without additional conditionalties", the DoT stated that "as per the existing policy, FDI up to 49 per cent will continue to be on automatic route".

A reply has been prepared to the Department of Economic Affairs in the finance ministry, which acts as the nodal body for the Investment Commission.

"Foreign Investment Promotion Broad approval shall be required for FDI in the licensee company, Indian promoters and investment companies, including their holding companies, if it has a bearing on the overall ceiling of 74 per cent. Under the present conditions, 74 per cent FDI under automatic route is not feasible in the larger interest of national security," the DoT said.

On the suggestion to "encourage new services and more efficient utilisation of existing infrastructure through local loop unbundling", The DoT said this would stifle infrastructure-based competition and technical innovation as new entrants preferred to "parasitise" the incumbent's (BSNL) network instead of building their own.

Local loop unbundling acts as a disincentive for incumbents for large scale deployments of broadband. Moreover, this would also cause serious commercial and revenue implications for the incumbent, it added.

The DoT is also of the view that the Investment Commission must incorporate telecom equipment manufacturing as a major thrust area to attract FDI. On a number of other suggestions, the department has said that it would take an appropriate view.