Foreign direct investment in Indian telecom sector trends determinants and its impact in the post liberalization period

Abstract

The Indian telecom sector is one of the most successful examples of liberalization in India as it has experienced substantial growth in terms of increased subscriber base, internet access, growing teledensity and higher participation of the private sector since 1991. The transition-trend in the telecom sector that had resulted out of liberalization, privatization and demonopolization had placed huge capital requirements. Hence, telecom reforms were introduced to allow 100% FDI in the Indian telecom sector. To have a holistic picture of foreign investment in the state of the Indian telecom industry, the present study attempts to determine the trends and patterns of FDI inflows in the post-liberalization period, empirically analyse the relative significance of various factors influencing FDI and determine whether the introduction of FDI has made any significant impact on the growth of the Indian telecom sector. newlineThe study finds that there is a significant positive trend in FDI inflows in the Indian telecom sector. Physical infrastructure, exchange rate, macroeconomic stability and business policy and regulatory environment are the significant determinants of FDI in the long-run. The impact of FDI inflows on the growth of the Indian telecom sector in terms of telecom sector revenue, internet access and subscriber base are insignificant. Private telecom firms receiving FDI, are generating profits by utilizing their resources most efficiently. They have made huge investments to provide telecom services in the rural areas and succeeded in bridging the digital divide in the country. At present, this industry is in complete disarray as the cost of doing business for the Indian telecom operators has been deeply affected by high license fees, high spectrum auction pricing, heavy taxes and multiple levies imposed by the government. This study would provide valuable information to the investors and help the policymakers to design suitable policies for attracting more FDI into the sector. newline newline