New Delhi, NFAPost: As part of another booster dose for debt-ridden telecom industry, the government has allowed 100 percent foreign direct investment in the telecom sector through automatic route to promote ease of doing business in the industry.
In a press note issued on Tuesday, the Department for Promotion of Industry and Internal Trade (DPIIT) said foreign investment in telecom services will be subject to the condition of Press Note 3 of 2020.
It is interesting to note that the Telecom Department has also reduced performance and financial bank guarantee requirements of telecom operators by 80 per cent. Prior to this, 100% of FDI was allowed, of which 49% of investment was permitted through automatic route.
According to the DPIIT’s press note, 100% FDI is permitted across all kinds of telecom services and infrastructure providers. In the Press Note 4 (2021 series), the government has amended the 100 per cent FDI cap in the sector to “Automatic Route”. The move will provide relief for Vodafone Idea, as it has been looking to raise funds from overseas to support its business.
The Department of Telecom (DoT) slashed performance and financial bank guarantee requirements of telecom operators by 80%. The amendment has been made in both old telecom licences in the UASL (Unified Access Services licences) category and new licences that were started in 2012- Unified Licence (UL) category.
The development comes almost over a year after the government notified changes in the FDI rules in April 2020 that made prior approval of the government mandates for foreign investments from countries that share a border with India including Pakistan, China, Bangladesh and Nepal.
As per Arvian Research analysis, the move will unblock cash reserves of Bharti Airtel, Reliance Jio, Vodafone Idea, BSNL internet licence holders like Tata Communications, Atria Convergence Technologies etc that they have kept with banks for securing bank guarantees (BGs).
“It is a move in the right direction as it will covers all telecom services including infrastructure providers under the new FDI rules. Under the amended norms in UL, telecom operators will be required to provide a performance bank guarantee (PBG) of up to Rs 44 crore for each service for the telecom licence compared to ₹ 220 crore mandated under the old rule,” states Arvian Research.
The rule will not be applicable in cases where bank guarantees (BG) have been furnished due to any court order or are subject to any litigation. Besides a total of nine structural reforms, the telecom sector relief package by the government had introduced computation of AGR dues, a four-year moratorium on patients etc among others.