Foreign direct investment in the Indian telecommunications sector



This compares poorly to other major developing countries in the region including South Korea
(74.5 percent), Malaysia (77.9 percent in 2001), and Thailand (98.5 percent in 2000).
36

The share of tax revenues received by the Indian government as a percentage of GDP has
shifted between eight and nine percent.
37 This compares unfavorably with other developing
nations over a similar time period such as Indonesia (13 to 16 percent) and Malaysia (14 to 20
percent). In addition, there is a large and vibrant underground economy in India that pays little or
no taxes. These factors further exacerbate the problems of receiving tax revenues that can then be
used to fund improvements to the public infrastructure.

The telecommunications infrastructure is lacking in comparison to other Asian countries.
Indian telephone faults per 100 phone lines were 126 in 2002. This compares unfavorably to
Malaysia (40 in 2001), the Philippines (5.2 in 1997), and Thailand (19.8 in 2001).
38 Indian fixed
line phone connections have been growing slower than mobile phone connections. The slow
growth of fixed phone lines also contributes to lower Internet penetration. As of 2003 India had
17.49 Internet users per 1,000 people and most of these users likely reside in urban areas. Other
developing countries have higher Internet penetration rates - China (63.25 per 1,000 in 2003),
Malaysia (344.1 per 1,000 in 2003), Philippines (44.03 per 1,000 in 2002), Thailand (110.5 per
1,000) and Vietnam (43 per 1,000 in 2003).
39 India’s low teledensity and low growth in fixed
telephones will likely hinder the provision and access to high-speed Internet services.

Tax policy has at times been disjointed and acted as a barrier to investment. It is
estimated that Indian taxes exceeded other potential FDI destinations from at least 2000 through
2003.
40 There are multiple domestic taxes and these taxes especially impact mobile phone
36 World Development Indicators - World Bank.
37 World Development Indicators - World Bank.
38 World Development Indicators - World Bank.
39 World Development Indicators - World Bank.

40 Report of the Committee on Compilation of Foreign Direct Investment in India.

11



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