The Hindu : Front Page : Chidambaram justifies need for more FDI in telecom

Online edition of India's National Newspaper
Thursday, Oct 14, 2004

Front Page

Front Page

Chidambaram justifies need for more FDI in telecom

By Our Special Correspondent

NEW DELHI, OCT. 13. While appreciating the Left parties' concern over increased foreign direct investment in the telecom sector, the Government justifies its plans in this regard. It asserts that domestic investments alone would not be able to fund the need to increase the telecom density.

Responding to the six objections cited by the Left parties to the proposal to raise the FDI limit in telecom sector from 49 per cent to 74 per cent, the Union Finance Minister, P. Chidambaram, says that most countries have permissive FDI regimes as opposed to restrictive ones. The choice of the FDI regime is to be based on the country's requirements. In India's case, these are security concerns and the need to attract greater investment. While the most recent growth in the number of phone connections has been exceptional, sustaining this and achieving the network coverage of 70 per cent against the present 20 per cent needs investments on an unprecedented scale that is possible only with FDI.

Allowing foreign equity

The Government does not agree with the perception of most countries imposing restrictions on foreign ownership in the telecom sector. It feels the Left parties' observation that "it is because of this strategic importance that foreign capital in the telecom sector is strictly regulated in most advanced and developing countries" is not correct. Many countries, including the most advanced and some large developing ones, allow foreign equity.

Though some important countries place restrictions on FDI in telecom, many Governments have made specific commitments to open up their market in the WTO's General Agreement on Trade in Services. Moreover, restrictions are placed on mobile services more due to spectrum availability rather than for ideological or security considerations.

Making a case for a higher FDI, Mr. Chidambaram says that infusion of foreign investment lead to better incentives for technology transfer and improved management leading to lower prices and better services. He asks the Left parties to look at the emerging trends rather than dwell on the history of controls in the sector.

The Government does not agree with the Left view that more FDI should not be infused into the telecom sector — a strategic sector with significant security issues. Ownership has little correlation with vulnerability to illegal access to information by hostile countries. But "legitimate concerns about national security" should be addressed by making security clearance for foreign partners mandatory and ensuring that resident Indians held critical positions in the company hierarchy.

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