Snafu over FDI policy in telecom

The DoT has asked the Cabinet to suspend FDI regulations till a consensus is reached.

The government guidelines that enhanced foreign direct investment in telecom services from 49 per cent to 74 per cent (Press Note 5 of November 3, 2005) are proposed to be "suspended" indefinitely.

The department of telecom has moved the Union Cabinet, recommending that the guidelines be suspended till a broad consensus on some amendments is reached.

A government functionary confirmed the move and said the Cabinet was scheduled to discuss the matter at its next meeting, possibly on Thursday. There is urgency as the correction time for telecom service companies to comply with various provisions of Press Note 5 is ending on October 2.

The implications of this move, clearly the result of wide-ranging and as yet unresolved differences between various arms of the government, are multiple.

For a start, while the hike in FDI to 74 per cent is not being rolled back, the suspension will send confusing signals to prospective investors who may want to enhance or acquire significant stakes in Indian telecom service providers.

Leading companies like Bharti Airtel and Hutchison Essar have undertaken substantial reorganisation of their corporate structure since last November.

The level of foreign holding in both companies is well above the 49 per cent mark and the Foreign Investment Promotion Board cleared their proposals in accordance with Press Note 5 recently.

The policy confusion is also likely to be enhanced due to the security-related ramifications. Press Note 5 has laid out strict conditions and compliance requirements for telecom service providers.

These were opposed by many, especially the burgeoning call centre and infotech-enabled services industry represented by Nasscom. The lack of any guidelines is certain to increase anxiety levels in the industry.

Following strong reservations, especially on network security, the DoT had prepared a note for the Cabinet that sought to amend the guidelines on various heads.

However, the Prime Minister's Office and the defence ministry have raised objections to the proposals. The ministry of home affairs has remained silent on the matter, while the external affairs and finance ministries have supported the move.

Industry watchers also interpret this as further evidence of Communications Minister Dayanidhi Maran being at loggerheads with the rest of the policy establishment on matters related to his watch.

"The fact that only a week is left to October 2 means the Cabinet will have no option but to agree with the DoT. Being presented with such a fait accompli is not something that will be appreciated by anyone involved "" various agencies of the government as well the industry itself," a source said.