GOVT looks to raise FDI cap in FM channels, DTH service providers

Rohini Singh, June 29, 2009
The Economic Times

The government is planning to raise foreign direct investment (FDI) limit in FM radio broadcasters and direct-to-home TV service providers. But several departments, including the Planning Commission, have expressed reservations. The Department of Industrial Policy and Promotion (DIPP) has proposed that FDI ceiling for FM broadcasters be raised to 24 percent from the current 20 percent, and to 74 percent from the existing cap of 49 percent in the case of DTH service providers. It has also proposed simpler FDI rules for Internet service providers (ISPs).

The proposal has been discussed among several government departments and a Cabinet note has been circulated. The proposal is likely to be taken up by the Cabinet soon, said a government official, who did not wish to be named.

The proposals are expected to go through since key nodal departments are in favour of easier FDI norms in these sectors. The proposals are in line with the new rules on direct and indirect foreign holding. All forms of foreign investments, including GDRs, ADRs and FCCBs, would be taken into account while calculating FDI.

The proposals come close on the heels of the information and broadcasting ministry’s clearance to 22 new TV channels from more than a hundred pending applications. This is the first major move on FDI liberalisation since Anand Sharma took over as the commerce and industry minister. The information and broadcasting (I&B) ministry is the parent ministry for the broadcasting sector.

DIPP has suggested that up to 24 percent foreign investment be allowed in FM radio, subject to the approval of the Foreign Investment Promotion Board (FIPB). The current policy allows FDI and FII only up to 20 percent. For broadcasting infrastructure activities, DTH as well as earth stations, the proposed FDI limit is 74 percent. Currently, 49 percent foreign investment is allowed in this segment with FIPB approval. In the case of DTH, FDI component is not allowed to go beyond 20 percent.

DIPP has also proposed that FDI regime for ISPs without gateways be simplified. Currently, 100 percent FDI is allowed, but FIPB approval is needed beyond 49 percent. However, ISPs have to divest 26 percent of their equity in favour of Indian public if they are listed overseas. The proposal seeks to raise foreign investment limit to 74 percent, with prior FIPB approval beyond 49 percent. This will do away with the distinction between ISPs with and without gateways.

However, the government does not seem to be in a mood to allow more than 26 percent FII and FDI investment in news channels. TRAI has recommended increasing the limit to 49 percent to enable news channels to access more resources without diluting editorial control. However, DIPP is not in favour of changing the current FDI limit. For general channels, 100 percent FDI has been permitted.

There is no proposal to change FDI limits in telecom services. But for satellite radio services and head-end-in-the-sky (HITS), direct and indirect foreign investment limit has been proposed at 74 percent, with FIPB approval beyond 49 percent.

In the case of cable networks also, no change has been recommended and FDI and FII investment will continue to be at 49 percent with prior approval from FIPB. Telecom regulator TRAI had recommended that foreign investment limit be raised to 74 percent since cable TV network is essentially a carriage platform like telecommunication networks where the limit is 74 percent.

The view within DIPP is that if the investment limit is increased to 74 percent, an amendment would be required in the Cable Television Networks Regulation Act. Moreover, I&B ministry is concerned that if the limit is increased then control could be passed on to the foreign partner, raising national security concerns.

It has also been suggested in the Cabinet note that foreign investment caps in both broadcasting and telecommunication sectors be composite caps. This means, it will include both FDI and FII. Foreign investment will also include NRI investments, FCCBs, ADRs, GDRs and convertible preference shares held by foreign entities.