March, 2005

The Government has recently cleared a hike in foreign direct investment ceiling for telecom services from 49% to 74%. This is expected to enable Indian promoters of telecom services to attract foreign players and attract the funding requirements for these capital intensive projects. In practice in any case, foreign companies were able to side-step restriction through the holding company route. Companies like Hutch and Spice have close to 73% foreign investment through the "holding company route." The new FDI policy would allow them to simplify their equity structures and regularise their holding pattern. As per the proposal, FDI would include investments from foreign institutional investors, non resident Indians, overseas commercial borrowings, foreign currency convertible bonds, American depository receipts, global depository receipts, convertible preferential shares, proportionate foreign investments in Indian promoters, and investment companies, including their holding companies.