FDI cap in Telecom raised to 74%

Posted on | October 23, 2005 |

Information Broadcasting Minister Jaipal Reddy said the Cabinet had raised the limit on foreign investment in telecom service firms to 74% from 49%.

The move met a long-standing demand from the cash-starved industry, which is looking to tap overseas money to fund nationwide expansion plans. The telecom ministry says the sector needs $20 billion to fund growth and such resources are not available in India, where the market value of the top listed mobile operator, Bharti Tele-Ventures, is just $13 billion.

The raised limit for telecom service firms will include investments by foreign funds, Indians living abroad, foreign currency convertible bonds, American and Global Depository Receipts and convertible preference shares, Reddy said.

However, foreign shareholding in state-run banks and financial institutions that hold shares of telecom services firms will not count toward the overall 74 per cent ceiling, he added.

Higher FDI level will help players like Bharti and Hutch, while Reliance and Tata may not be as keen. However, there are riders in the FDI norms like the top management (CEO, CFO, CTO) must be in Indian hands.

As per the new norms, 74% foreign investment can be made directly or indirectly in the operating company or through a holding company. The remaining 26% must be held by an Indian citizen or an Indian firm which does not have over 49% of FDI and its management should be with Indian owners. While the foreign holding of the Indian company will be counted towards the 74% FDI cap, foreign holding in Indian PSU banks and FI will be treated as Indian holding.

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