On the recommendation of the Telecom Commission, the Government of India is considering to scrap the 74% FDI limit in Telecom Services and raise it to 100% for Foreign Direct Investment. However, the erstwhile 49% cap on the automatic route may still stand under the new regulations if they are to be accepted by the Department of Industrial Policy & Promotion
An increase in the FDI limit in India may provide flexibility for international telcos with operations in India (such as Vodafone, Telenor, Sistema and Aircel) to infuse more capital. Furthermore, such a move would also suit Aircel, whose debt burdens and loss in competitive edge could be reversed through additional capital. This also means encouragement for newer Telcos to enter into the Indian market in the longer run, especially if the current consolidation in the industry boosts profitability.
With the Government considering fresh Recommendations from TRAI for the Auction of 1800MHz and possibly for re-farming of 900Mhz spectrum and Indian Telcos balance sheet already overstretched beyond limits, its time to encourage FDI in the sector to gain much as possible from the auction. However, the Dumb and IL-legitimate move to overturn the Supreme Court verdict by Retrospective Amendment of Laws to Tax Telcos profits by the Congress led UPA Government is unlikely to attract any new entrant unless it stabilizes in its policy making.