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G. Rambabu

NEW DELHI, Feb. 23

THE Group of Ministers (GoM) is scheduled to take a final call on the issue of hiking the FDI limit to 74 per cent in telecom services next week. Though it is expected to clear it with the proviso that management control remains in Indian hands, the Department of Telecommunications (DoT) has its own reservations.

According to informed sources, the main objection is the fact that the telecom licensing provisions do not have separate mechanisms for ensuring compliance with national security requirements. These cover unauthorised interception of calls to third parties and sudden shutdown of services in situations of emergencies, particularly where there is no other fallback option available.

"The security requirements over and above the provisions of monitoring made in the licence agreement is ensured by the mandatory requirement of management control under Indian hands. For this purpose it becomes imperative to limit the FDI to 49 per cent in sensitive and strategic telecom services such as basic, mobile, national/ international long distances etc.", it has stated in its report to the GoM.

In this context, the Department is of the opinion that it may not be feasible to hike the FDI limit and then ensure that the management control remains in Indian hands. Especially, since the experience over the past few years has shown that many of the foreign investors, mainly in the cellular sector, have resorted to "financial engineering" to circumvent the limit so far.

The most notable among them is the global telecom major Hutchison which has been frequently accused of wresting management control in its India operations. The company has also been regularly told to explain its equity holding pattern by DoT and the Department of Company Affairs (DCA). Its "complex" financial engineering that had drawn the attention of the Government included the allotment of non-convertible preference shares by its domestic partners, which fell outside the FDI purview.

For that matter, the present move to hike the limit to 74 per cent would only seek to "legitimise" the earlier investments of foreign companies rather than attract any fresh FDI into the sector. In fact many of the telecom companies worldwide have openly decided to scale down their investments because of the economic slump.

It may be worthwhile to note that over the past couple of years, many of them have pulled out of the country and it had nothing to do with the existing FDI limits. Notable among them are British Telecom, Telecom Italia, Telstra, Swiss Telecom, Telia, Hughes, Alltel Corp, Bell Atlantic, Bell Canada, Shinwatra, Bezeq, Telekom Malaysia, Jasmine International and Guangdong Lintech Ltd.

Among the big investors that continue to be present are SingTel, Hutchison, First Pacific, AT&T, Distacom, TIW Canada, France Telecom, Vodafone, CellNet, Century Telephone and Verizon. More than half of them are looking for buyers of their stake in the various operations and have openly stated so. Therefore, hiking the FDI limit may not serve the purpose intended, it is felt.

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