The Hindu : Business : Increased FDI ceiling in telecom sector notified

Online edition of India's National Newspaper
Tuesday, Nov 08, 2005

Business

Business

Increased FDI ceiling in telecom sector notified

Special Correspondent

Control of company management to be with Indian owners

`Majority' of directors should be resident Indian citizens Modifications for bring in more clarity FIPB approval needed for FDI about 49 p.c.

NEW DELHI: The Centre on Monday notified the increased foreign direct investment (FDI) ceiling of 74 per cent in the telecom sector with Indian owners in control of the management of companies.

"The total composite foreign holding, including but not limited to investments by FIIs, NRIs, FCCBs, ADRs, GDRs, convertible preference shares, proportionate foreign investment in Indian promoters/investment companies, including holding entities, will be referred to as FDI and will not exceed 74 per cent," an official statement here said.

In effect, FDI to the extent of 74 per cent can be made directly or indirectly in the operating company or through a holding company with the remaining 26 per cent to be owned by resident Indian citizens or an Indian company.

As at present, FDI up to 49 per cent will continue to be on the automatic route, the notification statement said.

The notification has come after a gap of nine months since the Cabinet initially approved the increased FDI ceiling in early February this year. Following opposition, certain modifications were introduced to bring in more clarity and the Cabinet had to approve the revised proposal again in October.

Noting that "FDI should not exceed 49 per cent and the management remains with the Indian owners," the statement goes on to clarify that the proportionate foreign component of such an Indian company will be counted towards the ceiling of 74 per cent. The foreign component in the total holding in Indian public sector banks and financial institutions (FIs) will, however, be treated as Indian holding.

All the telecom companies, which make use of this enhanced FDI facility, will have to disclose the status every six months. In particular, the majority of directors, Chairman, Managing Director and Chief Executive Officer will have to be resident Indian citizens. The appointment to these posts among resident Indian citizens will have to be made in consultation with "serious" Indian investors, who hold at least 10 per cent equity in the company.

According to the notification, the approval of the Foreign Investment Promotion Board (FIPB) will be required for FDI in the licensee company/India promoters/investment companies, including their holding companies, if it has a bearing on the overall ceiling of 74 per cent. While clearing the proposals, the FIPB will have to ensure that the foreign investment is not from "unfriendly" countries.

From the security point of view, the DoT will have the authority to restrict the licensee company from operating in any of the sensitive areas of the country.

An initial correction period of four months from the date of issue of the notification (November 7) has been allowed to the existing licensee companies.

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