"Our recommendation is to not increase the existing cap from 49 per cent to100 per cent," reiterate DoT officials.

This was decided at the Telecom Commission (TC) meeting, which was held onApril 28.

According to senior DoT officials, since the Ministry of InformationTechnology (MIT) and the Group of Ministers (GoM) has recommended 100 percent FDI in e-commerce, the TC also supports the proposal. As per a note,which was circulated for the consideration of Telecom Commission before themeeting on April 28, the Department of Industrial Policy and Promotion(DoIPP) had recommended increasing the cap on foreign equity from 49 percent to 100 per cent.

It had forwarded a copy of the note for consideration to the GoM.As per the note, the DoIPP was of the view that "inspite of the cap of 49per cent, foriegn investment has been achieved in excess, by way ofinvestment by FIIs or investment through preference share capital, whichdoes not attract equity cap. There are also instances of companies routinginvestment though other joint ventures to meet the requirement of 51 percent share of resident equity. Thus, there is an indirect control by theforeign investors."

The note also went on to add that in view of the fact that value addedservices in telecom are short of funds, the DoIPP proposes that for thetelecom services sector, the 49 per cent cap be removed and equity up to 100per cent maybe permitted. However, the DoT has rejected the DoIPPsrecommendations and is still against raising the existing cap. According toDoT officials, the department is against raising the cap for severalreasons.

For one, allowing 100 per cent FDI could have security implications. In caseof emergency/war, the Government can acquire control over Indian equity ofthe service provider, but it may be difficult to acquire such control in acompany controlled by a foreign company, he added.

Secondly, the existing 49 per cent cap on FDI already exceeds thecommittment of 25 per cent FDI, which was made to the World TradeOrganization (WTO). This is already much higher than the cap set by otherAsia Pacific countries, say DoT officials.

While HongKong, New Zealand, and Pakistan do not allow any foreigninvestment in Basic Telecom services, Korea has capped FDI at 20 percent,Phillipines at 40 per cent, Sri Lanka allows 35 per cent, and Thailandallows 20 per cent.

Thirdly, right now the priority of DoT is the corporatization of Departmentof Telecom Services (DTS). "And we do not want to give any wrong signals tothe employees of DTS. If DoT does accept suggestions of allowing 100 percent FDI in telecom services, the DTS employees could interpret this as amove to give majority shareholding to foreign companies, which could lead toretrenchment", add DoT officials.

As per the existing policy, FDI is limited to 49 per cent in basic, cellularmobile, paging and value added services, global mobile personalcommuncations by satellite, and internet provider service.