The telecom sector has emerged as a significant recipient of foreign direct investment (FDI), having firmly established itself as the fourth largest sector in terms of FDI influx into the country. As of December 2023, the telecom sector has contributed a substantial 5.9 per cent to the overall FDI influx. The satellite communications space has also been witnessing a growth spurt, owing to rising private sector participation, making it lucrative for investors. In tandem with this trend, the government has recently allowed 100 per cent FDI in the segment.
A look at India’s current FDI policy framework in the telecom and satcom domains…
Policy push for telecom
The government has taken several initiatives, including the relaxation of FDI norms across sectors. By relaxing FDI regulations, it has paved the way for a greater influx of capital. This favourable policy stance, combined with a robust business environment, has ensured a consistent flow of foreign capital into the nation.
In 2013, the government initiated the liberalisation of FDI norms, permitting up to 100 per cent FDI in certain sectors, with up to 49 per cent accessible through the automatic route. Subsequently, in September 2021, the government introduced significant structural and procedural reforms within the telecom sector. The reforms were designed to foster healthy competition, stimulate investment, alleviate regulatory burdens on telecom service providers and generate employment opportunities. There were also spectrum reforms, rationalisation of penalties and interest payments, and rationalisation of bank guarantees. These reforms have catalysed liquidity infusion into the telecom industry.
Current trends and landscape
As per the factsheet released by the Department for Promotion of Industry and Internal Trade (DPIIT), cumulative equity inflow from FDI into the telecom sector between April 2000 and December 2023 has reached a total of Rs 2,347.51 billion ($39,315 million). The sector has witnessed exponential growth over the past few years, primarily driven by affordable tariffs, increased accessibility, roll-out of mobile number portability (MNP), widespread deployment of 4G and 5G networks, evolving consumption patterns of subscribers, the government’s efforts to boost India’s domestic telecom manufacturing capacity and a conducive regulatory environment. These have contributed immensely to the rising FDI inflows into the sector.
In the coming years, the advancements within the telecom industry are likely to have positive ripple effects on FDI inflows.
FDI for satcom
The government has taken a significant step towards bolstering the growth of FDI in the satcom industry. In 2024, the union cabinet approved amendments to the FDI policy on the space sector, allowing up to 100 per cent FDI, marking a pivotal shift towards liberalising a domain that has long been under stringent regulatory control. The strategic decision is set to lower entry barriers for foreign players, and foster a more inclusive environment for foreign investments, technology transfers and collaborative research endeavours in space technology.
These amendments in the FDI policy are expected to act as a catalyst for the expansion of India’s space economy, which, as of 2023, is valued at approximately $8.4 billion, accounting for around 2-3 per cent of the global space industry. With an ambitious target to soar to $44 billion by 2033, the Indian space sector is poised to carve out a substantial niche within the global space economy.
Market outlook and the way forward
Going forward, India’s telecom and satcom segments are poised to see a rise in FDI over the next couple of years. This renewed optimism is fuelled by the opening up of satcom to the private sector, and the recent introduction of the Indian Telecommunications Act, 2023, which is expected to enhance the sector’s appeal and stimulate investment.
As the country gears up to welcome foreign investments, the establishment of a supportive ecosystem will be crucial in fully leveraging the potential of this policy shift. Thus, the road ahead presents both challenges and opportunities, with the potential to spark a new era of exploration and innovation in India.
