Foreign Technology, Foreign Investment and Indian Consumers

Aarur Pattabiraman

The Congress-led UPA-II government is claiming that all efforts would be taken to make India the best destination for attracting foreign investment. It seems that it is not satisfied with its 3rd top position of attractiveness.

In India, as on date FDI is prohibited only in areas like lotteries, chit funds, cigarettes manufacturing, real estate and sectors like Atomic energy and Railway Transport. There were 9 press notes issued in 2012, modifying the policies of FDI. In single brand retailing FDI was allowed from 51% to 100% and in multiband decision to allow 51% FDI was taken. Pakistan citizens were permitted to invest. Then decision was taken to allow 49% FDI in civil aviation sector. FDI limit was raised in broadcasting sector in DTH, mobile TV etc from 49% to 74%. Liberalization was allowed in power sector also by issuing press note for 49% FDI. The last press note issued in 2012 is to remove restriction for NBFC (Non Banking Finance Company) for setting up subsidiaries for its activities.

UNCTAD has recently published its World Investment Report (WIR 2012) analyzing global investment trends. In that report, it has been stated that India stands in the 3rd most attractive location. Even the Ernst and Young survey of 2012 places India the 4th global destination for FDI. Govt is allowing free flow of FDI in 63 sectors and the top ten sectors are banking, insurance, construction, telecom, computer software, drugs and pharmas, chemicals, automobiles, power, metallurgy. These sectors alone attract 70 percent of FDI inflow. The attractiveness position of Telecom is 3rd next to service sector and construction.

In the last 13 years (April 2000-April 2013), the amount of FDI inflow in Indian telecom is 58765 crore (12862 million US dollars), roughly 7% of the total inflow. During the December 2010, the cumulative FDI equity inflow was 5,68,246 crore (127 billion US dollars) and out of this the share of telecom sector was 46553 crore- more than 8%. The area of cellular mobile itself was near to 5% of the total inflow, amounting 29124 crore.

The ruling class and those executing the dictates of that class in Government are not satisfied with the present trend and they want to get more investment in telecom by opening the door wide and full. The high level committee set up by the government for financing infrastructure has recommended 100% FDI instead of the present 74% in telecom service sector. Arvind Mayaram Committee set up by Ministry of Finance is also in favour of FDI hike in telecom. TRAI has taken a decision and recommended 100% FDI in telecom and the same is to be sent for cabinet approval.

‘‘The Committee observed that the recent developments in telecom industry have increased policy uncertainties in this sector, which in turn have led to dampening of the investor sentiment. The Committee recommends that policies related to allocation, pricing and sharing of the spectrum allotted in the past need to be settled at the earliest to restore investors' confidence and ensure the needed investments.

The policy related to mergers and acquisitions of telecom licensees should be rationalized in order to facilitate consolidation in line with international experience. This will also give a further boost to investment and competition.

The Committee noted that auction-based investment by foreign investors will require large infusion of equity by companies seeking to establish a pan-India presence. The present FDI limit of 74 per cent already allows foreign investors to exercise complete control over their telecom companies. In such a situation, finding Indian investors who are willing to invest large sums representing the remaining 26 per cent and yet take a minority stake constitutes a significant constraint in getting competitive foreign investment at the right valuation. In other infrastructure sectors such as power, roads, ports etc., 100 per cent FDI is already permitted. The Committee, therefore, recommends that in order to get more competitive offers in the proposed auctions and also to enhance FDI, the said limit may be raised from 74 per cent to 100 per cent, especially as it may act as a barrier to competition and investment. Appropriate safeguards may, however, be built where necessary to address security concerns. The Committee also recommends that 2G licensees should be allowed to raise external commercial borrowings.

Telecom sector has witnessed a rapid growth during the Eleventh Plan period, with urban and rural teledensity reaching 170 and 39 respectively in March 2012. All consumers (through the respective licensees) bear a USO (Universal Service Obligation) charge of about 5 per cent which has led to the accumulation of a large corpus of over Rs. 20,000 crore. Since, connectivity is a form of empowerment; the Committee recommends that USO funds may be used for subsidizing telephone connections to the rural population that has remained uncovered so far."

In 11th plan, the total investment in telecom is 479245 crore and the share of Government is 97905 crore (20.43%) and private is 381340 crore (79.57%). In 12th plan, the projection is for 8,84,204 cr and share of private is estimated 776674 cr (87.84%) and the estimated public capital is 107530 cr(12.16%). One can easily discern, how private capital is growing and the space of public capital is shrinking in telecom. Government is not ready to expand public capital, on the contrary it is making efforts to take away its capital by disinvestment. The sectoral dynamics of telecom is higher than railways and airports. But Govt is not bothering to invest more and avoiding budgetary support for public telecom to grow. Telecom capitalists are strongly opposing any such help in the name of level playing ground and nobody knows what the GOM set up for revival of Telecom PSUs would recommend.

Mauritius is the country routing more than 65% of FDI flow in telecom and the next biggest route is Singapore 15%—USA and Japan, Russia share 9% in total. Delhi and Haryana area attract 36%, Maharashtra 24%, Gujarat 16%, Chennai 4% and Bangalore 3%. Idea cell got 7300 crore, Aditya Birla 2100 cr, Aircel 3000 crore, Airtel more than 3000 crore, Tata more than 1000 cr. Why investors choose Mauritius or Singapore route is a debatable question. According to various experts, the Double Taxation Avoidance Agreements of India and certain other countries are being misused by investors to avoid paying taxes by routing investments through countries which have tax treaty with India, in particular Mauritius and Singapore which account for 48% of FDI inflow to India. Tax concessions have been a major driver for companies routing (investments) into India through Mauritius.

The flow of FDI in the first 6 years (2000-2006) was only 10000 crore but in the next 6 years(2007-2012) there was rapid inflow amounting to 45000 crore—this has been the period in which Indian telecom capitalists captured the telecom market and public sector got worst affected and started declining.. This was the period almost all the tenders for expansion in BSNL were collapsed either by cancellation or by dragging the issue to the corridor of courts.

The decision of 100% FDI in telecom may be a boon to Private Telecom to help them to come out from their 2 lakh crore debt trap. If the cabinet approves the decision, ignoring the warning of Home Ministry on security grounds, then that day would be a dooms day and Indian telecom may fall completely in the lap of foreign MNCs. The face of Indian telecom would be like foreign technology, foreign investment and Indian consumers. No country can grow with foreign fly by night investment alone, ignoring indigenous technology.

The main contradiction in Indian Telecom becomes the contradiction between Private capital and the Public capital and the prime question before the Telecom PSU trade unions is how to resolve the same. BSNL trade Unions have been striving their best to improve the space of their PSUs, fighting the pro private policies of Government. A joint note is also submitted to the GOM for the revival of BSNL and MTNL. Trade unions have been compelling Government to give directives to all the Govt establishments to use only public telecom for their services. Govt is yet, to take a decision. Government is taxing BSNL 14.5% interest for 7500 crore said loan (notional loan). BSNL reserves were drained out by compelling the PSU to get 3G/ BWA spectrum at the highest bidding rate even for the non-commercial areas. Access Deficit Charge levied from private Telcos was stopped and loss making rural networks are not properly compensated. Expansion of Public network was completely stopped due to tender discrepancies and unnecessary intervention of Ministers and Ministry. Making every Telecom District a profit district is the new slogan that the Trade unions should advance and schemes should be chalked out to attain that goal. In order to attain the expected rural tele-density, Lower income group people should be given cash compensation. These alone empower Indian people and place them in the map of connectivity. The BSNL unions are firm in all these issues.

Public telecom and PSU means employment, cost effective guaranteed service, and national security. Let the trade unions fight the policy of 100% FDI in telecom and let trade unions strive their best to expand the base of Public telecom, its financial market and fight out the policies that stand as barricades arresting its space.

Frontier
Vol. 46, No. 5, Aug 11-17, 2013

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