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FDI: In National Interest, Should We Say No?

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VoicenData Bureau
New Update

Recently, the Union Minister for Information Technology and

Telecommunications, Arun Shourie, almost shocked his audience at a closed door

meeting of an industry association by reportedly naming an ISP which used to

transfer data from its



subscribers’ PCs to a third company with close links with the Chinese army.
Later, the minister made a statement in the Parliament warning the country

against cyber espionage, citing the case of the ISP. He informed that

intelligence agencies found that the company was linked to a Mauritian firm,

which in turn, was a subsidiary of a Hong Kong-based company with connections

with Peoples’ Liberation Army of China and the Chinese intelligence agencies.

"The system is capable of stealing memory of the computer it is linked to

and it could have laid its hands on some valuable intelligence inputs," he

said.

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Arun

Shouriee
Beware

of Espionag

This incident has come to light at a time when the government has been again

talking about raising the foreign direct investment (FDI) level in telecom

services to 74 percent from the present 49 percent level. In the past, whenever

the government has tried to raise the FDI limit, its move has been stymied by a

chorus of protests from sections that see giving management control of crucial

infrastructure services to foreign companies as potentially dangerous to

national security. In fact, this time also the ISP incident led to the Union

Cabinet turning down the proposal. The proposal was a follow-up to

recommendations of the NK Singh panel, which had called for a more liberalized

FDI regime for telecom.

Most of the time the bogey of security threat is dismissed as mere

imagination of misinformed and disgruntled elements within and outside the

government. However, with incidents like the one mentioned by Shourie, the fears

appear to be partly genuine. Interestingly, 100 percent FDI is allowed only in

the ISP business in the telecom sector.

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National security is paramount. But should that mean restrictions on FDI?

Restrictions do not make any business or economic sense. It is a well-known fact

that restrictions on inflow of capital raise its cost. And a country like India,

which needs huge amount of capital to invest in areas like telecommunications

infrastructure development, can only be at a loss if the cost of capital is

high. Should it then mean that we should allow any Tom, Dick and Harry with

money to own and manage crucial infrastructure like telecom? The answer here

also is no.

FDI

in Indian Telecom (1991—2002 MAY)
Rs Crore
Basic

Telephone Service
3,937
Cellular

Mobile Telephone Service
23,328
Radio

Paging Service


910

E-mail

Service
688
VSAT

Service
281
Cable

TV Network & Internet
1,602
Satellite

Telephone Service
481
Radio

Trunking Service
71
Manufacturing

and Consultancy
15,784
Holding

Companies
48,104
Other

Value Added Services
100
Automatic

Route
294
Total 95,580
Some

Telecom Service Companies having Foreign Investment
n

Hutchison Essar
n

Bharti Televentures
n

Idea Cellular
n

Escotel Mobile Communications
n

RPG Cellular Services
n

Spice Communications
n

Oasis Cellular
n

Hughes Escorts Communications
n

Comsat Max
n

Satyam Infoway
n

Primus Telecom
n

Dataaccess

So what is the best way out? Foreign capital, per se, especially if it comes

cheap is not bad. However, real politic demands that a country like India, which

has a running dispute with at least two of its neighbors, must put adequate

regulatory and technological safeguards in place before allowing complete

ownership of telecom services. "I think we need to check the ownership of

the money that is being invested. The government should come up with some

guidelines in this regard," urges a senior government official. In fact,

efforts have been made to implement the idea in the oil exploration sector. In

telecom and other crucial sectors too, the idea is reportedly being considered

for implementation. The oil ministry recently issued guidelines prohibiting

companies from countries like China and Pakistan, among others, from

participating in a bid for awarding contracts for exploration in the Andaman

& Nicobar Island region.

Apart from policy guidelines, in order to make sure that Indian

telecommunications networks remain immune to hostile attacks and no one tampers

with the information flowing on it, the government and the telecom service

providers should both work together to enforce a foolproof network security and

monitoring system. "Such an initiative is very important, given the fact

that telecommunications infrastructure plays a vital role in times of national

emergencies," a security analyst associated with the government,

emphasizes.

Ravi Shekhar Pandey

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