Phoney celebration

The real message in the Vodafone deal is about India8217;s fear of FDI

A British telecom major with an Indian-born CEO has won the bid to buy the controlling stake of an Indian telecom firm that was held by a Hong Kong conglomerate 8212; the reason for celebration here is less economic-nationalist than economic-rationalist. And once we take a rationalist perspective, the reasons for not cheering also become apparent. The positives, first. Vodafone8217;s acquisition of Hutch, as the explainer in our oped page points out, is likely to create new technological and tariff options, giving Indian consumers more choice in what is already the world8217;s most competitive mobile telephony market. The valuation for Hutch is also likely to set benchmarks for telecom deals in future and this is a good time to ask again that tantalising question 8212; just what would be the value of BSNL and MTNL were they to be privatised and sold?

That question however is also the starting point for gloomy thoughts. BSNL/MTNL sale is far, far off the official agenda. On a broader scale, notice that while Tatas could buy Corus whole, Vodafone can buy no more than 74 per cent of Hutch. Rules prevent 100 per cent foreign ownership.

Indeed, we must be thankful even this is allowed. India8217;s espiocrats have developed strong paranoia about FDI in communications technology and a committee of secretaries is looking at security issues. This is a good example of Indian official mindset. Another is a recent wish list of rules relaxation: the government is considering raising caps on air transport FDI currently 49 per cent and voting rights in foreign bank subsidiaries currently 10 per cent, it is also looking at not forcing foreign oil companies to disinvest 26 per cent in their Indian subsidiaries in five years and wondering about allowing FDI in commodity exchanges.

The problem is that while many in the political class will consider this radical 8212; most of these wishes will probably remain just that 8212; the list is actually pathetic, a reminder of official India8217;s bizarre fear about FDI. As Indian industry shops abroad, the country will have to face the question: can we be as hospitable? No, is the answer now. And if it remains a no 8212; the infamous Press Note 18, which micromanages Indian-foreign joint ventures, still exists, in another name 8212; the flip side of economic nationalism will leave little to celebrate.