Ring in the future

The cabinet decision to increase the FDI limit in telecom from 49 per cent to 74 per cent is a wise step. The telecom sector is one of the fastest growing and India8217;s target of 250 million phone lines by 2007 requires huge levels of investment, estimated to be up to 10 billion a year. FDI can bring with it capital, technology and new management techniques. This is one sector in India in which liberalisation has brought clear benefits to the population. Better services, access and lower prices have led to a ten-fold increase in teledensity in 10 years.

The recommendation for the increase has been long overdue. Security concerns have been raised in the past by IB and RAW. However, given the technology that exists in the world today, it is naive to believe that spying requires ownership of telecom companies by foreign companies. The move has also been opposed on the grounds that it will only benefit Hutch and Bharti, who have had to find roundabout ways for their foreign owners Hutchison Whampoa and Singapore Telecom. However, the cabinet decision requires them to clearly reveal their foreign holding, and some quarters even suspect that as a result their foreign holdings may have to decrease. Hopefully, those who have been opposing the hike in FDI limits, such as the Left parties, will welcome the greater transparency this will bring. The decision to hike FDI limits in telecom may not create a queue of investors lining up to invest in India immediately, but that is not the point. It opens up new possibilities in the future and as demand grows and opportunities arise, at least it will not be our restrictive FDI policies that are preventing growth in the sector.

At the same time, however, there needs to be an improvement in the regulatory framework and biases in favour of public sector companies MTNL and BSNL also need to be removed. The government should now focus on the improvements necessary in telecom regulation to ensure that the decision to hike FDI limits goes a long way and brings in much needed capital in a crucial sector.