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Government panel recommends FDI in Telecom sector

As per a recent article in The Economic Times, a government panel has recommended liberalisation of the telecom sector.  The report has been forwarded to the Department of Industrial Policy & Promotion (DIPP), the administrative ministry in charge of FDI policy. Key ministers like P. Chidambaram, Finance Minister and Anand Sharma, Union Minister of Commerce, Industry and Textiles, are expected to meet in the first week of July to finalise the plan.


Deloitte view

The Telecom sector in India needs over $100 billion in next few years to stay current with emerging technology, increased offerings and greater penetration. Only debt or local investments are not enough. FDI is very critical for this sector and rightly so the Mayaram panel has recommended full foreign ownership in Telecom sector. This presumes that the foreign players are interested in investment in India.
However, I have reservations on the response from the foreign investors due to following:
The industry is under tremendous stress due to regulatory and policy uncertainties mainly relating to:

  • No clarity on M & A guidelines
  • No clear roadmap on Spectrum re-farming
  • The regulator has levied one time spectrum charges for spectrum held beyond 6.2 Mhz from July 2008 (which has been litigated by all the operators)
  • National Telecom Policy 2012 aims at promoting efficient use of spectrum but challenge by government on legality of 3G Roaming agreement between the operators contradicts the same
  • Retrospective amendments to tax regulations so as to enable the government to levy tax on past transactions (e.g. Vodafone tax case)
  • Uncertainty on policy towards renewal of old licenses (operators are at various levels of adjudication)

To interest the foreign investors, the government should address these regulatory uncertainties and encourage level playing field for all the operators. The telecom industry is a strategic sector and an enabler of GDP growth. A clear roadmap from the government will not only enable growth of GDP but also help in reaching health care, education, banking, agriculture services etc. to 70% of the country’s population, which lives in rural areas.