India’s Telecom Policy Flip Flop

What does the Indian government really want? First, last year, it hikes the limit of foreign direct investment (FDI) in Indian telecom companies to 74 percent from 49 percent. Then several government agencies bung a spanner — no, make that several spanners — into the works, pushing the beleaguered Minister of Telecommunications close to reversing that decision, which may happen soon, newspapers here report.

This is definitely not what a liberalizing India needs–especially the telecom sector, which is a poster child for liberalization.

Which government agencies are stalling this once-approved proposal? Well, without inundating you with a list of the various agencies (with long names) involved, let’s just say the Prime Minister’s Office and the Ministry of Defense have been the biggest spanner bungers. They say that among other things, there are security issues with increasing foreign direct investment in the sensitive telecom sector and that they are concerned non-Indians might hold top posts in these telecom companies. They are even considering disallowing Indian telecom firms from monitoring their networks from abroad.

Nasscom, the organization that represents the Indian software industry, has said these restrictions could cripple not just India’s Business Process Outsourcing, software and IT-enabled Services industries, but also India’s telecom companies. “We are definitely concerned about limiting remote access,” Kiran Karnik, president of Nasscom told gigaom. “It (limiting access) is not a good idea because BPOs use a lot of international network providers that monitor the BPOs’ networks from three or four centers around the world.”

Karnik added that if remote access is removed, it will hurt the Indian companies’ ability to minimize downtime and ensure failsafe networks. Also, as some of India’s telecom companies are becoming global players (Reliance and Bharti Airtel) they will need to set up remote access to manage their members abroad. “If this becomes a reciprocal thing it will hit them as well.”

The Prime Minister’s Office said it would come up with an ‘umbrella law’ to deal with security issues across industries, but it hasn’t been able to do that for months on end.

We aren’t debating the merits or demerits of increasing FDI or allowing non-Indians to hold top posts. And being concerned about security is more than reasonable. What we’re saying is that this flip flop, this schizophrenia on the part of the government, just sends thoroughly confusing signals to any potential investors. Why didn’t the government sort out these issues before it approved a hike in FDI? “It suggests that the government is not serious,” says Vikas Aggarwal, general manager at the infrastructure division of ICRA, an associate of Moody’s Investor Service.
In fact there are reports that the (GSM) Cellular Operators Association of India says that in case a consensus was not reached, “a suspension or revocation of Press Note 5 may be the best option.” Yeah, anything is better than a litany of, “Yes, you can” and “No, you can’t.” As Sridhar Pai of Tonse Telecom says, “You don’t take two steps forward and one step back, you have to present a more consistent image.”

The telecom sector is one of the rising stars on India’s firmament. Its growth has been explosive and is only increasing. “To fund that growth you need not just debt but also equity and that’s where the increase to 74 percent would be a great benefit,” says ICRA’s Aggarwal. Yet, he doesn’t believe potential investors will walk out of the country if the FDI hike is reversed. “It is too great a growth story. People still going to invest because the type of returns they will get are tremendous.”

Let’s just hope he’s right.

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