Telecom FDI rules may ease

DoT wants FDI cap to exclude bank holdings.

The department of telecommunications (DoT) has proposed further easing of rules for foreign investment in telecom. In proposals for finalising the norms for allowing 74 per cent foreign investment in the sector, the DoT has suggested that bank-holding in companies providing telecom services be excluded while calculating the level of foreign investment.

The DoT has also suggested that the government allow people of Indian origin to be appointed to management positions, officials told Business Standard today.

After the Cabinet approved the proposals last month, the Foreign Investment Promotion Board, housed in the finance ministry, is drafting of the rules to raise the foreign investment cap in telecom from 49 per cent to 74 per cent.

Finance Minister P Chidambaram is studying the DoT's proposals, North Block officials said. Safeguards against foreign investment have been proposed after concerns were expressed by security agencies and the Left parties.

The proposal cleared by the Cabinet stipulated that resident Indians should account for a majority of the positions on bank boards, including those of chairman, managing director and chief executive officer. Other key positions like chief technical officers and chief financial officers also had to go to Indians, the Cabinet had decided.

After the Cabinet decision, some telecom service providers found themselves in a position where key posts were being held by non-resident Indians or foreign nationals. They have approached the DoT informally to get the rules changed, the officials said.

The officials also said the DoT had proposed keeping banks out of the 74 per cent limit as many telecom companies had reached the prescribed level of foreign investments.

"It would, however, be difficult to exclude the stake held by banks while calculating the foreign investment level in a company," a finance ministry official said.

As per the revised policy cleared by the Cabinet, the 74 per cent cap will include all direct and indirect investments made by foreign institutional investors, non-resident Indians, foreign currency convertible bonds, depository receipts and convertible preference shares.

It also stipulated that at least 26 per cent equity had to be held by Indian citizens or an Indian company, and that the foreign investment in an Indian company would also be counted in the 74 per cent cap. Also, at least one Indian promoter has to have at least a 10 per cent equity in the company.

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Opening the floodgates

HOLDING NORMS

Proposal: Bank holding in telecom companies should be excluded while calculating foreign investment levels

Relief: Many firms have reached the prescribed level of foreign investments. Excluding banks' share will help them raise more funds

Brass churn

Proposal: People of Indian origin can be appointed to management positions

Relief: Many firms have NRIs in their managements