Tatas dial rejig for telecom FDI norms

Less than two months after having notified the new guidelines for foreign direct investment (FDI) in the telecom sector, the government is n...

Less than two months after having notified the new guidelines for foreign direct investment (FDI) in the telecom sector, the government is now in the process of “reviewing” this policy, which requires all telecom operators to adhere to some stringent guidelines in four months’ time (March 2006), failing which their license will be cancelled.

The fresh controversy centres around a clause inserted in the press note issued in November last year which requires all telcos, including those who don’t want to raise their FDI limit beyond 49 per cent, to follow a set of conditions such as majority directors on the board, including chairman, managing director and the chief operating officer to be ‘‘resident Indian citizens’’.

More importantly, there is also a clause of ‘‘deemed cancellation’’ of license if a telco fails to adhere to the set of conditions mentioned in the press note. Here, apart from the issue of hiring only Indians, there are several other clauses — such as control of remote access to be within the country and not abroad — which, if not followed even by existing telecos, will lead to deemed cancellation.

This review of policy has been prompted after the Tatas’ raised some serious objections on the provisions in the press note issued by the commerce ministry. A missive to this effect has been sent to both the commerce and telecom ministries seeking a way out.

It is the commerce ministry that issues the press notes regarding FDI and in this particular matter it’s the telecom ministry that provided all the inputs for the press note.

When contacted, a senior commerce ministry official told The Indian Express that ‘‘This not an issue which is limited to the Tatas alone…it is a much bigger issue…the telecom ministry is looking into the matter’’.

Senior telecom ministry officials confirmed that the policy is ‘‘being reviewed’’ and have not yet decided how to resolve the matter. ‘‘The matter is being discussed’’ they said, and confirmed that the issues raised by companies such as the Tatas are being looked into.

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As many as seven clauses and 13 sub clauses are present in the FDI policy on enhancement of ceilings from 49 per cent to 74 per cent after being cleared by the cabinet in February last year. The aim of the policy was to provide for all safeguards when foreign investors start acquiring majority stakes in these ventures.

Though the missive was not sent by Ratan Tata, who also heads the Investment Commission, the note from the Tatas clearly says that these conditions ‘‘would be construed as a step backward and would not reflect an appreciation of the history of telecom regulation in India…’’

The Tatas’ serious objection is on “deemed cancellation” for not having followed the provisions in the press note. First, the press note says that even companies that don’t want to increase their FDI limit need to follow a set of conditions.

Then, if these conditions are not followed within the four months adjustment period (beginning November, 2005), the licensee would “deemed to be cancelled” and the government (as licensor) can encash the bank guarantees.

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In fact, the press note says an unconditional compliance certificate needs to be given to the government within four months. In the telco’s opinion, cancellation should be a conscious decision and the licensee should be given adequate time to present their case as well.

For companies that do not want to increase their equity beyond 49 per cent, it is pointed out that existing professionals at top levels would now have to be removed for “no fault of theirs”. It also points that such restrictions are not imposed in other sensitive sectors such as power and petroleum.