Foreign direct investment in the Indian telecommunications sector



Issues with Indian Foreign Direct Investment in the Telecommunications Sector

India has several positive attributes that attract FDI - a stable political environment, large
consumer market, skilled labor force and access to the Asia-Pacific region. FDI inflows have
assisted in helping India provide telecommunications access to more of its population than might
otherwise have been possible.

There are, however, several barriers to growth in attracting foreign direct investment for
the Indian telecommunications sector. These barriers include the cost of mobile phones and
services, high infrastructure costs, tax policies, unclear FDI policy and regulation, the legal
climate, the status of rural areas and corruption.

The cost of handsets and mobile services is high relative to the average income of
Indians. The average mobile phone handset can cost almost $66 and phone service can costs $5 a
month.
32 The average Indian salary is generally low and this amount is even lower in rural areas
where the bulk of the population (approximately 72 percent in 2003) lives.
33 In addition, the
average monthly revenue per mobile phone customer has dropped noticeably to $8 in 2004. The
average Asia-Pacific mobile phone service provider receives $17 in monthly revenue.
34 Average
revenue per mobile phone subscriber is expected to decline 13 percent annually through 2008.
35
This may result in a reduction in handsets and services in India and jeopardize NTP and FDI
goals.

The condition of roads, public transit and phone service unreliability may shift FDI to
countries other than India. Only 57.35 percent of the road network was paved in India as of 1999.

32 Economist Intelligence Unit, “Mobile telephones”, Business India Intelligence - Main Report, June 1, 2005.

33 World Development Indicators - World Bank.

34 Economist Intelligence Unit, “Mobile telephones”, Business India Intelligence - Main Report, June 1, 2005.

35 Economist Intelligence Unit, “India Telecoms: A brave new world.”, Business India Intelligence - Main Report,
March 24, 2004.

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