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ECONOMICS ASSIGNMENT

Change In Government Policy

SUBMITTED BY

ADARSH P. S

ANJU K. U

ASWATHY UNNIKRISHNAN

NAMITHA SAIRA EAPPEN

RIYA CLEATUS

SHANIMA NASAR

POLICY ADOPTED

The government raised the FDI limit of telecom services from 49% to 74% in 2004-05 Budget.

ABOUT THE POLICY

According to the new norms, 26% share out of the 74% should be held by an Indian company or an Indian citizen with Indian management. Further, 100% FDI is permitted in telecom manufacturing, category I infrastructure providers, ISPs without gateway, call centers and IT-enabled services. Further, direct or indirect FDI up to 74% is permitted subject to licensing and security requirements for ISPs with gateways, radio paging operators and category II infrastructure providers.

The relaxation in FDI norms has attracted many foreign telecom majors to the sector. The presence of foreign players has not only encouraged faster infrastructure development and up gradation but also has opened up the domestic industry to foreign competition. Since 2004, there has been a large inflow of FDI in the sector. During 2004-05 and 2005-06, a period during which the FDI norms were relaxed, the FDI inflow grew by an astounding 300% to US$ 624 mn in 2005-06 from merely US$ 125 mn in 2004-05. The inflow of FDI has provided tremendous impetus to the sector in the past few years and the attractiveness of the sector has kept the FDI inflows growing steadily. During FY09 the FDI in the telecom sector at US$ 2,558 mn was 103% higher than that seen in FY08 at US$ 1,261 mn. Further, the FDI in the sector has already reached US$ 2010 mn for a six month period of FY10 (Apr-Sep 09) and is expected to surpass the total FDI for FY09.

The government’s liberalized FDI policies have resulted in several foreign companies entering into the Indian markets. The influx of foreign players in the Indian telecom industry has led to capacity creation, and better infrastructure, which in turn has bettered the network...