Foreign direct investment in the Indian telecommunications sector

Foreign Direct Investment in the Indian Telecommunications Sector

By Keith Green

Abstract

This paper will examine the current status of foreign direct investment (FDI) in the Indian
telecommunications sector and the issues facing foreign companies seeking to invest in the
Indian telecommunications sector. The paper concludes with a brief econometric examination of
the factors influencing the level of FDI in the Indian telecommunications sector.

Introduction

In the early 1990s India began to open up an economy that was previously closed to
foreign direct investment (FDI). The liberalization in India included the gradual granting of
authority for foreign direct investment in specific sectors of the economy. India has received
significant inflows of foreign direct investment after liberalizing its economy in 1991 (see Figure
1 in the appendix). FDI inflows to India have exceeded many other ASEAN countries over time.
However, China, not depicted in Figure 1, continues to be the leading destination for FDI in the
Asia-Pacific region.

India has achieved substantive improvements in telecommunications access since
opening its telecommunications sector in the early 1990s. However, India has realized fewer
benefits than were possible during the period of market reform. The slow implementation pace of
liberalization, disparity between urban and rural areas and unclear regulations have impeded the
flow of investment to the telecommunications sector in comparison to other emerging market
economies.

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