To give foreign exchange inflows in the country a push, the Government on 26 August relaxed the norms for foreign direct investment in the telecom sector by dropping certain security-related provisions mandatory for 100 per cent FDI proposals.
Under the earlier norms, there were a number of security-related provisions. These have now been scrapped. For example, it was mandatory that the Chief Officer In-charge of technical network operations and the Chief Security Officer should be resident Indian citizens. It was also mandatory that the positions of Chairman, Managing Director, Chief Executive Officer and Chief Financial Officer, if held by foreign nationals, be security vetted by the Ministry of Home Affairs. This security vetting had to be done every year.
These rules were proving to be an irritant for foreign players. There were more than 20 other security-related conditions in the earlier FDI norms, for which the operators had to file a compliance report every six months.
The new rules, while permitting 100 per cent FDI, have done away with these requirements and only want the operating company to fulfil licence conditions.
While 49 per cent FDI has been permitted through the direct route, anything above that will have to go through the Foreign Investment Promotion Board. The new relaxed rules make things easier for investors at the time of taking approval from the FIPB.
However, industry watchers are not impressed. They say the relaxations do not mean much as some of the security-related provisions have been incorporated into the new unified licence regime.
For example, the new licence states that key positions in the company, if occupied by foreigners, will have to be cleared by security agencies. All telecom companies, new and old, will have to migrate to the unified licence regime.
Telecom analysts say that tweaking the FDI rules would remove the clutter though the actual flow of investments will happen only if the Government changes the merger and acquisition norms governing the sector.
Under the M&A rules, buying a company is an expensive proposition because the buyer will have to pay the price of the spectrum to the Government in addition to paying the seller.