History of Indian Telecommunications
Prior to 1991 India actively implemented an import substitution strategy.1 This strategy
effectively limited foreign direct investment in almost all major areas of the Indian economy. In
1991 India experienced a balance of payments crisis when foreign exchange reserves ran
dangerously low. Subsequent to the crisis the Indian government implemented a structural
adjustment plan to stabilize the balance of payments and sustain long-term economic growth.
India sought to reduce the role of the government in the economy and create greater market
efficiencies. Some of the primary impacts of the plan were to open up the economy to foreign
investment and encourage privatization in some formerly state dominated industries.2 In addition,
licensing requirements and import tariffs were reduced.3
Telecommunications in India were formerly provided by state-owned enterprises. The
government companies provided all local and long-distance communications within India.
Private investment, foreign and domestic was not permitted prior to the opening of the economy
in the 1990s.
Determinants of FDI and the Indian market transition
The allocation of foreign direct investment is influenced by many factors including the
quantity and quality of the host country’s labor pool, the wage rate of the host country labor
pool, the host or foreign country’s regulatory and legal environment, the size of the host country
1 Padma Desai, (ed)., Going Global: Transition from Plan to Market in the World Economy (MIT Press, 1997) and
Athreye, S. and Kapur, S. “Private foreign investment in India: pain or panacea?” World Economy, vol. 24, no. 3
(2001):399-424.
2 Report of the Committee on Compilation of Foreign Direct Investment in India. Reports on investment approval
and FDI in India. New Delhi: Academic Foundation, 2004.
3 Balasubramanyam, V. and Mahambare. “FDI in India.” Transnational Corporations, vol. 12, no. 2 (2003):45-72.