Govt to Left: Get real, telecom can boom only with FDI

To meet the target of 200 million subscribers until 2007 and a much larger base beyond 2007, an ‘‘investment of Rs 1,60,000 crore’’ is required, the note said, during the Tenth Plan period. Even if domestic capital of this magnitude were to become available, ‘‘which is doubtful,’’ the note said, it would ‘‘certainly be at the expense of investment in other sectors where foreign investment may not enter as readily.’’

“Clearly the foreign investment should be welcomed as a means of adding to overall capital formation in the country. The momentum that the telecom growth can be ensured through bringing down cost of services may be taken as valid. But the fact remains unless there are abnormal profits in the system, regulation alone cannot bring down the cost of services,” it said.

‘‘In conclusion,’’ the Finance Minister’s note said, ‘‘it needs to be stated that most countries have permissive FDI regime as opposed to restrictive regime and the choice of FDI regime has to be based on the country’s own requirements, which in India’s case are our security concern and the need to attract greater investment.’’

The salient points of the note:

Left

US, Canada, France, Taiwan, Korea have caps. US has a limit for all radio-license (including cellular) of 20%. Exemption is allowed on case-by-case basis but until 1994, no such approval was given.

Govt

• Across the world, restrictions on mobile services are more due to spectrum availability rather than any ideological or security considerations.

• Several countries have no FDI limits, including UK, Germany, Argentina, Brazil, Pakistan, Bangladesh, Sri Lanka. Of 29 OECD countries, FDI caps are only in a few (Canada, Korea, Mexico, Poland, Turkey) with restrictions only for mobile services in France, US.

• In US, restriction only on grant of radio licences…these do not apply to indirect foreign ownership. In US, fixed, trunk and international services have no restrictions. Also, EU has asked US to lift these restrictions as part of GATS talks.

Left

Telecom is strategic sector, that’s why IB and DRI favour 49%. Almost all countries in region with security concerns have FDI caps

Govt

• Ownership has little correlation with vulnerability. The point that hardware will compromise security is not valid since imports of telecom equipment are completely free under OGL. Better response: security clearance for foreign partners and critical management by resident Indians.

• Countries in region such as Pakistan, Bangladesh and Sri Lanka have no FDI caps in telecom.

Left

Indian telecom firms are healthy, can raise funds from domestic market. Constraint is cost of services that can be met through regulation

Govt

• Domestic savings alone will not lead to requisite growth in telephony. Rs 1,60,000 cr is required during the Tenth Plan period.

• $11 billion needed from 2002-2007. Even after taking the healthy balance sheets, FDI required: $2.5 billion

Left

There is already adequate competition in fixed line and mobile segments and so lifting FDI cap to promote competition not valid. This argument is put forward by cell lobby as they want to exit from the market after making windfall profits.

Govt

• Key driver of telecom growth is cost of services.

• The real benefit of competition comes from threat of new entrants and that’s why FDI, it’s a means of keeping that threat alive. If players want to exit, all the more reason to allow FDI, to prevent the market from being captured by one or two players.

The note was not too elaborately discussed at today’s UPA-Left coordination committee meeting. The note itself made it absolutely clear of the government’s intention not to give in to the Left’s demands to discard the very idea of hiking FDI. Already the Left had climbed down from its earlier position on FDI cap increase in the aviation sector. Now the UPA leadership was gradually getting the better of the Left parties in another crucial FDI sector.

This evening, the Left did not want to comment on Chidambaram’s views. CPM politburo member, Sitaram Yechury told reporters outside the Prime Minister’s house that they would go through the note and the issue would be discussed again at the next coordination meeting towards the end of this month.