India and its communications sector

In a move to boost India’s economy, on 16 July 2013 the Indian Government eased the rules relating to Foreign Direct Investment (“FDI”) in the telecoms sector. The industry saw a FDI hike from the previous 74% to 100%, taking away the hurdle of needing a local partner to operate in the Indian market and paving the way for foreign operators to buy out existing local partners. The move came as part of a wider move in the relaxation of several sectors including insurance, single-brand retail and defence.

India is one of the world’s largest growing markets for telecommunications. In 2012, connections stood around 890million. Indeed many of the world’s biggest telecommunications names such as Vodafone, Sistema and Telenor have already invested in the Indian economy. This move to liberalise is expected to see these players revisiting their strategies and ownership stakes as well as encouraging capital investment from private investors, particularly from the Middle East. It is a move that will certainly get investors and telecom operators re-visiting and exploring their Indian market strategies.

Whilst at face value the liberalisation measures seem to remove hurdles to entry and reduce risks of capital investment, looking behind the scenes there are still concerns – anyone looking to exploit the FDI increase should certainly look closely at the market and the telecoms regulatory regime that underpins it. As before only 49% of telecoms sector FDI will be allowed through an “automatic” approval route, with the remaining 51% having to be approved via the Foreign Investment Promotion Board (FIPB). This is not a straightforward process in itself. There also remains uncertainty around India’s “preferential market access” policy, a big unknown for operators wanting to use potentially cheaper telecoms equipment manufactured abroad i.e. outside of India. Underpinning all of this is the certainty and stability of the telecoms regulatory regime. We should remember that it was only last year that the Indian Supreme Court unexpectedly revoked 122 telecom licences in an extraordinary move that shook the telecoms sector.

First published on in July 2013