DoT rejects proposal of Parekh panel

The Department of Telecommunications (DoT) rejected the proposal of the Parekh committee on the financing of infrastructure to increase the ceiling on FDI in this sector from current 74% to 100%.

DoT opposes this due to security concerns . The 74% FDI hike in the sector in 2007 was opposed by the Ministries of Home and Defense.

What are the major recommendations of Parekh committee on FDI in Telecom?

• Allow 100% FDI in Telecommunication.
• The 2G spectrum licencees be allowed external commercial borrowing (ECB).
• Rs 20,000 crore corpus collected for the Universal Service Obligation Fund be used for subsidizing telephone connections for the rural population still not uncovered.

Why does the panel think so?

As per the panel, auction-based investment requires large investment of equity by companies desiring to establish pan-India operations. It reasoned that the current limit of 74% already permits foreign investors to exercise complete control over their telecom companies. In such condition, finding Indians willing to invest large sums to meet the remaining 26% and yet own a minority stake constitutes a major hindrance in getting competitive foreign investment at the right valuation. As per the panel, the move is needed to attract more competitive offers in the proposed auctions and also bolster FDI. Appropriate safeguards could be put in place to address security concerns.