FDI call's through at last with stiff riders

Quid pro quo: 74% telecom FDI; 9.5% EPF rate.

The Cabinet today allowed 74 per cent foreign direct investment (FDI) in telecom companies, raising the ceiling from 49 per cent at present.

However, the higher cap comes with a slew of riders to address security concerns raised by the Left and the intelligence agencies.

Finance Minister P Chidambaram told a press conference that resident Indians would need to hold at least 26 per cent in any telecom company at all times.

The 74 per cent cap will include the shares held by foreign institutional investors, non-resident Indians, depository receipts (ADRs and GDRs), foreign currency convertible bonds and convertible preference shares.

In addition, the foreign investment in holding companies will also be taken into account while calculating the foreign investment limit. Companies will be required to disclose the holding pattern half-yearly and also certify that its foreign investment is within the 74 per cent cap.

"FDI, as defined, will be subject to the laws of India and not the laws of the country from where the investor comes.... This will bring transparency to the rather opaque policy," Chidambaram said.

He added that existing licences would have to be amended to confer powers on the department of telecommunications (DoT) to cancel licences under certain conditions.

The top management, including the chairman, chief executive, chief technical officer and chief financial officer of telecom companies should be also resident Indians.

The new policy also restricts operators from sharing information with outside agencies about their subscribers and network design. But operators will provide traceable identity of its subscribers.

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. These measures were meant to placate the Left, which was consulted by the government before it went ahead with its decision.

Higher FDI is expected to help finance the expansion plans of service providers. "We need at least $20 billion in investment over the next three years and a part of this has to come as FDI," Communications Minister Dayanidhi Maran said.