Inter-ministerial body Telecom Commission on Wednesday gave its nod for raising foreign direct investment limit in the sector from 74 percent to 100 percent subject to Cabinet approval.
"TC has approved raising of FDI limit to 100 percent from 74 percent at present where 49 percent of investment in an entity can be done through automatic route and FIPB approval will be required for raising further stake. The decision will come in force only after cabinet approves it," a senior government official said.
The official said that Department of Telecom will send a detailed note to the Department of Industrial Policy and Promotion which would take it forward for inter-ministerial consultations before moving it to the Cabinet.
At present, FDI limit in the sector is at 74 percent where 49 percent is done through automatic route and rest requiring nod from Foreign Investment Promotion Board.
The idea behind the proposal to increase FDI limit in telecom sector is to help the industry get fresh funds to lower financial burden.
Reacting to the proposal, telecom operator Aircel's spokesperson said, "The move will help the industry to bring in more FDI to fund the high CAPEX demands of this sector especially in areas where coverage needs to be enhanced , and launch new 3G and BWA services. This will undoubtedly have a huge benefit for our customers and higher licence fee for the government."
Malaysian firm Maxis Communication holds 74 percent stake in Aircel with rest of the stake being held by Sindya Securities & Investments Private Limited.
Reacting to the development, Russian conglomerate Sistema controlled SSTL's spokesperson said "Sistema Shyam TeleServices is supportive of 100 percent FDI in telecom. The much needed policy decision is certainly a pro industry and a pro consumer move."
Indian telecom firm Reliance Communications said, "100 percent FDI in telecom will enhance value for all stakeholders."
According to a presentation by GSM industry body COAI to DoT, the debt of telecom sector stood at Rs. 1,85,720 crore at end of 2011-12. This included debt of Rs. 93,594 crore from domestic and Rs. 92,126 crore from external sources.
The Commission also discussed creation of Telecom Finance Corporation (TFC) to address the sector's funding challenges and "sought a detailed project report on it".
The TFC is proposed to be set up on the lines of sectoral finance bodies such as Power Finance Corporation and Tourism Finance Corporation of India.
The proposed TFC is targeting financing Rs. 38,000 crore in a five-year period.
The issue of lowering government's stake in Telecommunications Consultants India Ltd was also placed before the commission. However, the commission decided the time is not ripe for it.
"There are issues related to valuation of share of TCIL.
The company is also negotiating for stake sale its holds in Bharti Hexacom which has to be sorted before any decision on TCIL is taken," the official said.