Telecom sees sudden jump in FDI

Surge in Nov-Dec, compared to earlier 7 monthe of FY14, even as many of the top global firms are yet to come here

Economic Affairs Secretary Arvind Mayaram was the first to express concern about the steep fall in foreign direct investment (FDI) in telecom. In September 2013, he’d written to M F Farooqui, secretary in the department of telecommunications, asking him to take immediate steps to address the issue, as the decline had affected the country’s current account deficit.

The intervention seems well-timed. Between November and December 2013, FDI inflow in telecom suddenly jumped 155 per cent as compared with the total inflow during April-October 2013. And, this does not include Vodafone’s projected investment of Rs 10,141 crore for raising stake in its Indian entity, as the proposal was formally approved only last month.

FDI inflow in telecom in November-December was Rs 305 crore. During April-December, the total FDI inflow in telecom was Rs 502 crore, as compared with only Rs 197 crore during April-October, according to data from the department of industrial policy & promotion.

Telecom was one of the top three sectors in terms of attracting FDI since April 2000. But its share drastically fell in April-October, pushing the sector to the bottom of the FDI inflow list (just 0.3 per cent of the total FDI inflow of Rs 74,972 crore into the country during the period). Between April 2000 and December 2013, telecom accounted for about six per cent of total FDI inflow, third in terms of attracting foreign investors, after services (19 per cent) and construction (11 per cent).

During 2010-11, telecom attracted 7.7 per cent of India’s total FDI; this fell to 5.4 per cent in 2011-12 and 1.35 per cent in 2012-13.

In August 2013, the government decided to increase the FDI cap in telecom to 100 per cent. However, for more than 49 per cent of equity, companies would have to secure an approval from the Foreign Investment Promotion Board (FIPB). Earlier, up to 74 per cent FDI in the sector was allowed — 49 per cent through the automatic route and the rest after FIPB approval. Since August 2013, FIPB has approved two FDI proposals in the sector. Singapore-based SingTel was allowed to increase stake in the long-distance phone business in India; this involved a very small investment. The other was British telecom giant Vodafone’s proposal to increase its stake in Vodafone India.

However, Mayaram’s hope of bringing top global telecom companies to India might not come true in the near future. In his letter, Mayaram had said most of the top global telecom companies, including Nippon Telegraph & Telephone, South Korea-based SK Holdings, China Mobile Communications, and Deutsche Telekom, weren’t present in India.

According to an analyst with a global consulting firm, 12 of the top 18 telecom companies, in terms of global revenue, weren’t present in India. “The 2G scam was one of the key reasons why foreign investors stayed away. While the government has allowed 100 per cent FDI, unless new companies enter the market, there might not be much change. But as foreign companies will not require a local partner, genuine interests are building up,” the analyst said, adding it would take a few more quarters to get fresh investors.

Among existing foreign investors, Norway-based Telenor has 74 per cent stake in Telewings Communications, Malaysia-based Maxis holds 74 per cent in Aircel and Russian conglomerate Sistema has 56.68 per cent stake in Sistema Shyam Teleservices.