India Raises Foreign Investment Limits On Telecom

Bangalore, India — As the U.S. telecommunications market girds for further consolidation, India has moved to raise the foreign investment limit in telecom companies here from 49 percent to 74 percent.

After months of wrangling with Communist parties that are part of the ruling coalition in New Delhi, Finance Minster P. Chidambaram announced Wednesday (Feb. 2) the decision to raise the limit on foreign direct investment in telecom. However, several strings were attached that left industry analysts wondering whether the move would spur investment.

Telecom stocks did rise on several Indian exchanges in response to the announcement. However, Bharti Televentures, the holding company owning Bharti Mobiles Ltd., India's largest GSM-based services provider, saw its share price decline. Nevertheless, several initial public offerings from telecom providers are expected this year on the assumption they will have access to lower-cost capital for expansion.

While increased foreign holdings in local telecom firms has been a high priority, Indian security officials and Communist allies in the ruling government have bitterly opposed the move. Their opposition has dampened the mood despite the long-awaited decision.

Regardless of what form investments take, including direct equity holding or through a stock market floatation, the cumulative foreign investment cannot exceed 74 percent, the government said.There are other restrictions. Remote equipment cannot be used to provide telecom services in India. Also, senior executives of Indian telecom companies must be resident Indians. Violation of of conditions would result in cancellation of a company's license to provide services in India, the government said.

Companies such as Bharti Mobiles and analysts have lobbied for higher foreign investment limits, saying they are necessary to pay for infrastructure equipment needed to expand services in India's booming telecom market. India's wireless market has huge potential, but overseas investment is needed to speed deployment.