India raised the foreign investment cap in telecoms companies to 74 percent from 49 percent on Wednesday, clearing the way for badly needed investment in the world's fastest-growing mobile phone market. The move, a long-standing industry demand, comes despite stiff opposition from communist parties who lend crucial support to the federal coalition headed by Prime Minister Manmohan Singh, the architect of India's first big economic reforms in 1991.
India's mobile telecoms industry, which employs both major technologies GSM and CDMA, has an ambitious target of increasing the total number of fixed and mobile phone connections in India to more than 200 million by 2007 from about 95 million now.
The telecoms ministry says 1 trillion to 1.5 trillion rupees ($23-$34 billion) will be needed, and such resources are not available in India, where the market value of the top listed telecoms firm, Bharti Tele-Ventures Ltd, is just $9.4 billion.
"Part of this has to come as foreign direct investment," Communications Minister Dayanidhi Maran told reporters.
It will particularly help mid-sized firms which, unlike leading players such as Bharti and Reliance Infocomm Ltd, find it difficult to raise money at low interest rates to fund expansion, analysts say.
"It is a positive development for carriers and the investment community is looking to take a longer-term view of the huge growth potential in the Indian telecoms market," said Kobita Desai, principal analyst at research firm Gartner.
The move is likely to benefit GSM carriers such as the Indian mobile unit of Hutchison Telecommunications International Ltd and unlisted Idea Cellular Ltd., in which Singapore Technologies Telemedia Pte and the international investment arm of Telekom Malaysia Bhd (TM) hold 47.7 percent.
Singapore Technologies and TM welcomed the raised FDI limit and said in a statement their consortium would evaluate the option to buy more Idea shares "at the appropriate time".
But along with the liberalisation, the government included tough norms, possibly to placate its communist supporters.
Maran said foreign firms would need state approval to raise holdings beyond 49 percent. The majority of board directors and the chief executive, chief technology officer and chief financial officer must be Indians, and the key Indian shareholder should not own less than 10 percent, Maran added.