FDI policy changes announced by the government have caused a lot of brouhaha in the telecom sector. A press release issued by the Cabinet Committee on Economic Affairs on Wednesday features amendments to the government’s policies on foreign direct investment in Indian companies in telecom, media, aviation, banking, defence and insurance sectors. The changes in the FDI policy have been made following recommendations by a group of ministers headed by External Affairs Minister Pranab Mukherjee. The release says that in an attempt to create "investor friendly, credible and predictable regulations that would facilitate greater foreign capital inflows and send a positive signal in the present difficult economic scenario," the government has modified guidelines for calculation of foreign investment and the transfer of ownership or control of Indian companies to non-resident entities. FDI In Telecom Now 98%? The amendment says indirect investment is no longer be part of sectoral ceilings, so could foreign investors increase their stake through the indirect mode in Indian telecom companies? Currently foreign direct investment in Indian telcos is restricted to 74%. Media reports, such as this one from TelecomTiger, declare that the announcement really means the FDI cap in Indian telcos is no longer 74 percent but a whopping 98 percent. Controls Amendments in the policy also introduce a new concept of controls and ownership in the sector. An Indian company that is backed by foreign investments but ultimately controlled and owned by Indians can invest without being under the FDI cap. No Clarity After announcing such…
