India may reinstate FDI cap on telcos

Dylan Bushell-Embling
04 Aug 2014

There is pressure from inside the Indian government to reinstate the 74% cap on foreign ownership of telecom operators – a prospect that could have negative implications for Telenor, Sistema and Vodafone.

India's home ministry have called for the re-imposition of the ownership limit, citing national security grounds, the Economic Times reported.

The ministry is calling for a review of telecom foreign direct investment rules, as a result of Edward Snowden's revelations about government spying programs including Prism.

The government last year abolished the 74% cap on foreign direct investment in an Indian telecom operator, partly in an attempt to attract more international investment in the nation's telecom sector.

But according to a research note seen by the Economic Times, the ministry is now concerned that foreign ownership of operators intensifies security issues related to encryption and remote network access.

The proposed change would throw a roadblock in the way of Norway's Telenor and Russia's Sistema and their efforts to raise their ownership of their respective Indian operations.

Telenor recently applied for approval from India's Foreign Investment Promotion Board to increase its stake in Uninor to 100%, and Sistema is seeking approval to raise its stake in Systema Shyam beyond the current 74%.

A change in FDI law could also have implications for Vodafone, which acquired full control of its Indian unit earlier this year. But the home ministry's note states that it has no intention of changing the law in a way that would have a retroactive effect.

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