Indian telecom sector may see FDI revival from FY25

India's telecom sector is expected to see a revival in foreign direct investment over the next couple of years. This optimism stems from two recent developments: the opening of satellite communications to the private sector, and introduction of the Telecommunications Act, which are expected to make the sector attractive and stimulate investment, analysts and industry experts said.

The telecom sector has been a laggard in attracting FDI since 2020-21 with the highest amount being $713 million in 2022-23. Previously, the sector used to get a generous amount of FDI, scaling a peak of $6.2 billion in 2017-18.

Experts said one of the factors for the low level of FDI in recent years is the availability of greater sources of domestic funding. Secondly, investments in telecom have never been linear, happening in spurts when companies launch a new technology.

“The FDI in the sector is expected to go up in the current and next couple of years as compared to the last 2-3 years, with the opening up of satellite communications and introduction of new Telecommunications Act, which in effect would make the sector more attractive,” Prashant Singhal, telecom leader, member firm of EY Global told ET.

Another industry executive said while one would expect a fair amount of investment in satellite communications, including foreign investment, the impact of the Telecommunications Act on the investment cycle will depend on the notification of rules to implement the Act.

“So far, we don’t know how the authorisation mechanism will work and whether there will be less regulatory burden on the firms,” said Mahesh Uppal, director at telecom consultancy Com First (India) Pvt. Ltd.

Data from the Department of Telecommunications (DoT), showed the telecom sector has received more than $1 billion in FDI every year since 2007-08, with spurts in 2008-09, 2009-10 and 2016-17, 2017-18. In the two fiscal years of 2016-17 and 2017-18 combined, a total FDI of $11.7 billion came to India.

In 2008, various foreign telcos like Telenor and Sistema entered the Indian market, leading to large amounts of FDI in the country. Similarly, after Reliance Jio launched 4G services in September 2016, there was uptake in FDI as the technology was rolled-out by all the telcos.

“Investment in telecom happens in spurts and is rarely linear. The FDI as well as domestic investment can be high when telcos roll out new technologies. When the network is in place, investments decline,” Uppal said.

Asked about the reasons for low FDI in the past few years, he said this could be due to several factors. “First, the domestic sources are now much more willing and able to invest in the sector, so dependence on FDI is lower. There were many players in the sector, including foreign companies. There are fewer players running separate networks,” he said.

As per government data, most of the FDI in telecom has come from Mauritius since 2000-01, followed by Singapore, Japan, Russia and the US. While Mauritius, Singapore and the US have been bringing FDI every year, there has been no investment from Russia since 2016-17, while Japan also has not invested in India since 2020-21.