The telecom sector has been a significant contributor to attracting foreign capital into India over the years. It stands as the fourth-largest sector in terms of foreign equity inflows, with total investments amounting to approximately $40 billion between the cumulative period from April 2000 to September 2024, as per the data provided by the Department for Promotion of Industry and Internal Trade (DPIIT). This accounts for 6 per cent of the total equity inflows during this period.
According to DPIIT, the majority of FDI in the telecom sector since 2000-01 has originated from Mauritius, followed by Singapore, Japan, Russia and the US. While Mauritius, Singapore and the US have consistently contributed FDI every year, Russia has not made any investments since 2016-17, and similarly, Japan has ceased investing in India’s telecom sector since 2020-21.
To enhance FDI inflows into the telecom sector, the Indian government has implemented several strategic initiatives, including the relaxation of norms and regulations to foster a more open and investment-friendly economy. These measures have significantly increased the sector’s potential to attract foreign capital.
Notably, in 2021, the government raised the FDI limit for all telecom services, including infrastructure providers, from 49 per cent to 100 per cent under the automatic route. This policy change allows companies to invest freely in the sector without requiring prior government approval, thereby streamlining the investment process and encouraging greater participation from global investors.
Current trends and landscape
Despite significant liberalisation and the opening up of the sector, FDI inflows into the telecom industry have experienced a noticeable decline in recent years. FDI equity inflows have significantly decreased from $6.21 billion, which is 14 per cent of the total equity inflow, in 2017-18 to just $0.28 billion in 2023-24, which is merely 1 per cent of the total equity inflow in the given period. In addition, inflows for the 2020-21 period were just $0.39 billion due to the Covid pandemic, which impacted international investment flows, investor confidence and global value chains, and created inflationary pressure.
The decline in FDI inflows in the telecom sector can primarily be attributed to two key reasons. Firstly, the increased availability of domestic funding in recent years has reduced the sector’s reliance on foreign capital. With high potential returns in the telecom industry, major Indian players such as Reliance Jio, Bharti Airtel and Bharat Sanchar Nigam Limited have been able to meet funding needs through internal accruals, domestic debt and equity markets.
Secondly, the decline can be attributed to the cyclical nature of investments in the telecom sector, which tend to occur in spurts rather than in a consistent, linear pattern. Significant inflows are typically observed during periods of new technology launches and major technological advancements within the sector. However, once the network is established, foreign or domestic investments tend to go down. For instance, according to data from the Department of Telecommunications, the sector has consistently attracted over $1 billion in FDI annually since 2007-08, with notable surges in 2008-09, 2009-10, 2016-17 and 2017-18. The combined FDI inflows during fiscal years 2016-17 and 2017-18 reached an impressive $11.7 billion. This was due to the entry of foreign telecom players such as Telenor and Sistema into the Indian market in 2008 and the launch of Jio’s 4G services in September 2016, which spurred a wave of technological adoption across the industry.
Recent developments
FDI inflows into the telecom sector are anticipated to rise in the current year and over the next few years, following the relatively low figures of the past two to three years. This growth is expected to be driven by two key factors which include the opening up of satellite communications (satcom) and the introduction of the new Telecommunications Act, 2023. These developments are creating a more appealing environment for potential investors by establishing clear, streamlined and liberalised regulations, ultimately encouraging greater participation in the sector.
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 in 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.
Telecommunications Act, 2023
One of the key objectives of the Telecommunications Act, 2023, is to attract both domestic and foreign investments into the telecom sector. By offering a stable and predictable regulatory environment, the act aims to boost investor confidence and encourage capital inflows, which are essential for building the required infrastructure and scaling operations.
The act also highlights the importance of public-private partnerships (PPPs) in achieving its goals. By combining the expertise and resources of the public and private sectors, PPPs can draw foreign capital to support the development of critical telecom infrastructure and services.
Further, the impact of the new policy initiatives is already evident in the sector. According to the latest factsheet by DPIIT, the FDI equity inflows for the 2024-25 period (till September 2024) stood at $670 million. This figure is already higher than the $282 million recorded for the entire 2023-24 fiscal year. This increase signals a “U-shaped” recovery in FDI inflows for the sector, with the 2024-25 period marking the beginning of a rebound after significant declines in capital inflows during the 2017-24 period.
Market outlook and the way forward
FDI is not only a crucial non-debt financial resource but also a channel for the transfer of technology, intellectual capital and access to international management from leading investors.
Moving ahead, to sustain and boost FDI in the telecom sector, the focus must remain on strengthening policy reforms to ensure a transparent, stable and investor-friendly regulatory environment. Prioritising emerging technologies like 5G, internet of things and satellite communications along with targeted incentives will attract strategic global investments.
Additionally, fostering global collaborations in research and innovation and simplifying bureaucratic processes while developing solutions for potential future challenges will position India as a preferred destination for telecom investments.
Shashwat Singh
