Sunil Jain: This will encourage FDI?

RATIONAL EXPECTATIONS

You have to hand it to the government. Even when it liberalises policy, it ensures the "deleterious" aspects of it, such as increased competition, which hurts domestic industry though it benefits consumers, are kept to the minimum. So, while its policy to increase foreign investment limits in telecom to 74 per cent will allow existing telecom firms to sell higher stakes to foreigners, the new policy has enough caveats to ensure few brand new players will come in to set up shop.

To take the completely ridiculous portions of the new telecom FDI policy first, the policy says the majority directors on the board including the chairman, managing director and chief executive officer have to be resident Indian citizens, and the same applies to the chief technical officer and the chief financial officer as well as other posts which the government can notify at any point in time. Since such restrictions don't apply to any other sector like airlines (only the chairman has to be an Indian) or oil, for instance, why it applies to telecom is unclear. It gets even more ridiculous since, even when a foreign firm owns 74 per cent of the Indian telco, it still has to appoint the chairman, managing director and CEO "in consultation with serious Indian investors", and a serious Indian investor is defined as someone who owns at least 10 per cent of the firm's equity""why even bother to invest in India if someone else decides who's going to run the firm?

At a time when the country's police/investigative arms find it impossible to trace people at times, telecom firms "must provide traceable identity of their subscribers". Since this is presumably to track people who buy pre-paid cards, use them for crimes and then disappear, why not apply the same rules to companies that sell cars and two-wheelers which these criminals use? While clauses such as these are usually seen as just paperwork which no one is really expected to follow, the new rules say the compliance with the licence agreement will now be included in the company's Memorandum of Association and any violation of the licence agreement shall automatically lead to the company not being able to carry on its business.

In addition, there are a slew of new clauses that are completely out of tune with existing practices in most countries of the world. No traffic from subscribers within India, the policy states, to subscribers within India shall be hauled to any place outside India. Perfectly reasonable, you'd say""after all why should the call I make from Delhi to Mumbai travel via Singapore? The problem is that when you use the internet to deliver packets of information, the network automatically chooses the least congested path, so Delhi to Mumbai via Singapore may indeed be a faster solution in comparison to Delhi to Mumbai straight.

In order to ensure no one (abroad, at least!) spies on Indian citizens, the rules say companies cannot provide any accounting information relating to subscribers to anyone outside the country. Again, on the face of things, this is perfectly reasonable. But put some names and situations to the rule, and you get a frightening picture. Say, Google has two backoffice R&D centres in Bangalore and Gurgaon, and these are connected through leased lines with Google's international network. Naturally, Google's network people internationally want to keep a tab on the network, to study usage patterns, to ensure it's not clogged or stressed. Normally, therefore, in most countries of the world, they would routinely be able to monitor this, but now what's being said is that as far as Google's international network people are concerned, the India operations will be a big black hole, with no information filtering out, and certainly not on a real-time basis. Imagine what something like this will do to the country's BPO operations, given just how critical network management is to their efficiency.

Companies that set up huge international networks, similarly, have network operation centres across the world to monitor their operations. So, for a firm that decides to apply for an international long-distance licence in the country, the India operations will not be monitorable overseas""the problem is that since network platforms are co-ordinated by firms on a global basis and not on a country-by-country basis, this will ensure there will be little fresh investment in the international long-distance market. It is also an open question as to how other countries will react to a situation in which India says its networks cannot be managed from overseas while Indian firms sitting here are trying to win contracts to maintain/repair global networks out of India. Admittedly, there are security concerns, but even the US, which is so paranoid about security, allows remote access on a case-by-case basis, with safeguards such as ensuring such access is done only by affiliates of the licensee, by authorised personnel that are security cleared by the host country's government, and so on.

The crowing glory, of course, is that all the new provisions apply not just to firms that choose to have a 74 per cent foreign equity, but even to firms that continue to have less than 49 per cent foreign equity! That, presumably, is why, to paraphrase a leading Hollywood actress, no one's beating a path to Sanchar Bhawan's door, pleading to be let in.