Foreign direct investment climate in India is likely to take hit in the wake of Supreme Court cancelling licences of 122 telecom operators.
While some experts point that ambiguity in regulatory norms may cost FDI investment dearly, others say it may not have an impact as sunrise sectors such as telecom and retail are backed by strong consumer tractions and, therefore, will find investors.
According to Mr Krishan Malhotra, Partner, KPMG, “There certainly would be some negative impact on the telecom sector. Overall also the move is not very positive for India. As far as foreign investors are concerned, they would like to park funds where there is no ambiguity on regulatory norms”.
Telecom is the second biggest sector attracting as much eight per cent of the foreign direct investment in India. Service attracted maximum FDI inflow. Telecom sector had bagged cumulative FDI of $12.54 billion since April 2000-Nov 2011. During April-November 2011 period, the telecom sector had received an FDI infusion of $1.98 billion.
“Cancellation of the 2G licence could cost India Inc over $8-10 billion annually, which is currently in circulation by 122 such licences. Auction may not see much excitement and a lot of clarity on whether existing operators can participate or not etc. It is a relegating development for the sector. It will create uncertainties in the companies involved over the next four months.
“This will also, have ripple influence on the entire telecom value chain and derivatives of the sector including passive infrastructure providers, value-added service providers, OEMs etc. It will generate negative market sentiment waning the investors' confidence which will have a significant impact on the FDI inflow across sectors,” said Mr Prashant Singhal, Partner in member firm of Ernst & Young Global.
He said the sector will witness substantial erosion in foreign investments by the leading international operators. Also, impact would be on 9-10 per cent in terms of total subscriber market share.
According to Mr Manoj Pant, JNU professor and expert on overseas investments, “Such a decision would not impact the investor climate nor the FDI inflows considering that 2G case has been on for quite sometime and quashing the licences does not mean much for foreign direct investors”.