Economy of India

The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity (PPP). In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and natural resources, and a huge knowledge base. Economists predict that by 2020, India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterized by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the economy towards a market-based system. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world. India's large service industry accounts for 62.6% of the country's GDP while the industrial and agricultural sector contribute 20% and 17.5% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%. The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include

telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and software. India's per capita income (nominal) is $1032, ranked 139th in the world, while its per capita (PPP) of US$2,932 is ranked 128th. Previously a closed economy, India's trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports
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and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985. Despite robust economic growth, India continues to face many major problems. The recent economic development has widened the economic inequality across the country. Despite sustained high economic growth rate, approximately 80% of its population lives on less than $2 a day (PPP). Even though the arrival of Green Revolution brought end to famines in India, 40% of children under the age of three are underweight and a third of all men and women suffer from chronic energy deficiency.

ECONOMY OF THE REPUBLIC OF INDIA

Currency Fiscal year Trade organizations Statistics

1 Indian Rupee (INR) () = 100 Paisa 1 April 31 March

WTO, SAFTA, G-20 and others

GDP

$1.242 $3.528 trillion (2009) 6.7% (2008/2009)[2] $1,032

trillion
[1]

(2009)[1]

(nominal;

12th)

(PPP; 4th)

GDP growth

GDP per capita

(2009)[1]

(nominal;

139th)

$2,932 (2009)[1] (PPP; 128th) Agriculture: 17.5%, industry: 20% and services: 62.6% (2009 est.) 7.8% (CPI) (2008)

GDP by sector Inflation (CPI) Population below poverty line Gini index Labour force Labour by occupation force

22% (2008)[3]

36.8 (List of countries) 467 million (2009 est.)

agriculture: 52%, industry: 14% and services: 34% (2003)

Unemployment

9.5% (2009 est.)[4] telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology

Main industries

External Exports $155 billion f.o.b (2009 est.) software, petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures

Export goods

Main partners Imports

export

US 12.3%, UAE 9.4%, China 9.3% (2008)

$232.3 billion f.o.b (2009 est.) crude oil, machinery, gems, fertilizer, chemicals China 11.1%, Saudi Arabia 7.5%, US 6.6%, UAE 5.1%, Iran 4.2%, Singapore 4.2%, Germany 4.2% (2008) $232.5 billion (31 December 2009 est.) [5]

Import goods Main partners Gross external debt Public finances Public debt Revenues Expenses Economic aid Foreign reserves Main import

$163.8 billion (2009)[6] 60.1% of GDP $153.5 billion (2008 est.) $223 billion (2009 est.) $1.724 billion (2005)[7] $287.37 billion (end-Dec 2009) data source: CIA World Fact Book

All values, unless otherwise stated, are in US dollars

INDIAS ECONOMIC HISTORY India's economic history can be broadly divided into three eras, beginning with the pre-colonial period lasting up to the 18th century. The advent of British colonization started the colonial period in the early 19th century, which ended with independence in 1947. The third period stretches from independence in 1947 until now. Since 1991 Economic liberalization in India and Economic development in India Major improvements in educational standards across India has helped its economic rise. Shown here is the Indian School of Business at Hyderabad, ranked number 15 in global MBA rankings by the Financial Times of London in 2009.[52] In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found it facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms. In response, Prime Minister Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalisation of 1991. The reforms did away with the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.[55] Since then, the overall direction of liberalisation has remained the same, irrespective of the ruling party, although no party has tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies.[56] Since 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security.
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While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's.[57] In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China.[58][59]. In 2009 India purchased 200 Tons of Gold for $6.7 Billion from IMF as a total role reversal from 1991.

Foreign Direct Investment In India

Share of top five investing countries in FDI inflows. (20002007) Rank 1 2 3 4 5 Country Mauritius United States United Kingdom Netherlands Singapore Inflows (Million USD) 85,178 18,040 15,363 11,177 9,742 Inflows (%) 44.24%[116] 9.37% 7.98% 5.81% 5.06%

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI);[117] India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 300 million and represents a growing consumer market. The inordinately high investment from Mauritius is due to routing of international funds through the country given significant capital gains tax advantages; double taxation is avoided due to a tax treaty between India and Mauritius, and Mauriitus is a capital gains tax haven, effectively creating a zero-taxation FDI channel.

India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure. A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, creditinformation services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. FDI inflows into India reached a record $19.5 billion in fiscal year 2006-07 (April-March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24 billionand for 2008-09, it is expected to be above $35 billion. A critical factor in determining India's continued economic growth and realizing the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.

Boom in the Indian Telecom Sector Here to Stay

Introduction The telecom services have been recognized the world-over as an important tool for socioeconomic development for a nation. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Indian telecommunication sector has undergone a major process of transformation through significant policy reforms, particularly beginning with the announcement of NTP 1994 and was subsequently re-emphasized and carried forward under NTP 1999. Driven by various policy initiatives, the Indian telecom sector witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also. Status of Telecom Sector The Indian Telecommunications network with 430 million connections (as on March 2009) is the third largest in the world. The sector is growing at a speed of 46-50% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation. The Indian telecommunication industry, with about 525 million mobile phone connections (Dec 2009), is the third largest telecommunication network in the world and the second largest in terms of number of wireless connections. The Indian telecom industry is one of the fastest growing in the world and is projected that India will have 'billion plus' mobile users by 2015. Projection by several leading global consultancies is that Indias telecom network will overtake Chinas in the next 10 years. For the past decade or so, telecommunication activities have gained momentum in India. Efforts have been made from both governmental and non-governmental platforms to enhance the infrastructure. The idea is to help modern telecommunication

technologies to serve all segments of Indias culturally diverse society, and to transform it into a country of technologically aware people. A large population, low telephony penetration levels, and a rise in consumers' income and spending owing to strong economic growth have helped make India the fastest-growing telecom market in the world. The first and largest operator is the state-owned incumbent BSNL, which is also the 7th largest telecom company in the world in terms of its number of subscribers. BSNL was created by corporatization of the erstwhile DTS (Department of Telecommunication Services), a government unit responsible for provision of telephony services. Subsequently, after the telecommunication policies were revised to allow private operators, companies such as Vodafone, Bharti Airtel, Tata Indicom, Idea Cellular, Aircel and Loop Mobile have entered the space. see major operators in India. In 2008-09, rural India outpaced urban India in mobile growth rate. India's mobile phone market is the fastest growing in the world, with companies adding some 19.1 million new customers added in December 2009 The total number of telephones in the country crossed the 543 million mark on Oct 2009. The overall tele-density has increased to 44.85% in Oct 2009. In the wireless segment, 19 million subscribers have been added in Dec 2009. The total wireless subscribers (GSM, CDMA & WLL (F)) base is more than 543.20 million now. The wireline segment subscriber base stood at 37.06 million with a decline of 0.12 million in Dec 2009. The Government has taken following main initiatives for the GROWTH OF THE TELECOM SECTOR: Liberalization

The process of liberalization in the country began in the right earnest with the announcement of the New Economic Policy in July 1991. Telecom equipment manufacturing was delicensed in 1991 and value added services were declared open to the private sector in 1992, following which radio paging, cellular mobile and other value added services were opened gradually to the private sector. This has resulted in large number of manufacturing units been set up in the country. As a result most of the equipment used in telecom area is being manufactured within the country. A

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major breakthrough was the clear enunciation of the governments intention of liberalizing the telecom sector in the National Telecom Policy resolution of 13th May 1994. National Telecom Policy 1994

In 1994, the Government announced the National Telecom Policy which defined certain important objectives, including availability of telephone on demand, provision of world class services at reasonable prices, improving Indias competitiveness in global market and promoting exports, attractive FDI and stimulating domestic investment, ensuring Indias emergence as major manufacturing / export base of telecom equipment and universal availability of basic telecom services to all villages. It also announced a series of specific targets to be achieved by 1997. Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. TRAIs mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society. One of the main objectives of TRAI is to provide a fair and transparent policy environment, which promotes a level playing field and facilitates fair competition. In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority.

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The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI. New Telecom Policy 1999

The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate. Key features of the NTP 99 include: Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged. Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted. Department of Telecommunication Services (DTS) corporatised in 2000.
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Spectrum Management made transparent and more efficient.

All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition. Unified Access Services

Unified access license regime was introduced in November2003. Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensees network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years, extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A, Category `B and Category `C Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum. 3G & Broadband Wireless Services (BWA)

The government has in a pioneering decision, decided to auction 3G & BWA spectrum. The broad policy guidelines for 3G & BWA have already been issued on 1st August 2008 and allotment of spectrum has been planned through simultaneously ascending e-auction process by a specialized agency. New players would also be able to bid thus leading to technology innovation, more competition, faster roll out and ultimately greater choice for customers at competitive

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tariffs. The 3G will allow telecom companies to offer additional value added services such as high resolution video and multi media services in addition to voice, fax and conventional data services with high data rate transmission capabilities. BWA will become a predominant platform for broadband roll out services. It is also an effective tool for undertaking social initiatives of the Government such as e-education, telemedicine, e-health and e-Governance. Providing affordable broadband, especially to the suburban and rural communities is the next focus area of the Department. BSNL & MTNL have already been allotted 3G & BWA spectrum with a view to ensuring early roll out of 3G & WiMax services in the country. They will pay the same price for the spectrum as discovered through the auction. While, Honble Prime Minister launched the MTNLs 3G mobile services on the inaugural function of India Telecom 2008 held on 11th December 2008, BSNL launched its countrywide 3G services from Chennai, in the southern Tamil Nadu state on 22nd February 2009. GROWTH IN TELECOM SECTOR AT GLANCE The telecom sector in India has witnessed unparalleled growth especially over the last decade as compared to global standards. In the case of wireless telephony, India has grown from having a zero subscriber base a decade ago to becoming the second largest market in the world after China in 2009 with around 359 million subscribers and another 10 million adding every month. The last couple of years have witnessed investments of a whooping 8.5 billion dollars in this sector with 550 million dollars being in the form Foreign Direct Investment, more commonly known as FDI. Even though the the telecom sector has witnessed a rapid rise only in the last few years, efforts were on by the government ever since 1994 when the first National Telecom Policy was announced and in the August of 1995 when Kolkata became the first Indian city to have cellular networking. The Telecom Regulatory Authority of India(TRAI) was setup in 1997 and the second National Telecom Policy came into effect in mid 1999. In January 2001, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) started functioning and a policy was announced for additional licenses especially in the area of basic and mobile services. In November 2003, the Unified Access (Basic & Cellular) Service License (USAL) was introduced

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as a first step towards a Unified License Regime Technology and allows provisioning any kind of service.

And very recently the introduction of the additional 2G spectrum has helped in the entry of several new players who are now partnering with various international operators thereby commencing the globalisation of the Indian Telecom Industry. The impending auction of the 3G spectrum is sure to provide another huge leap to the telecomindustry in India. In such a situation concerted efforts must be made by both the government and industry to have organised and systematic growth so that the entire potential of the sector can be harnessed. This telecom boom in India can be attributed to policies of liberalisation, globalisation, certain reforms by the government and most importantly competition. The liberal policies of the government thus provide easy market access for telecom equipment and also a regulatory framework that is fair and just and offers telecom services to the Indian consumer at astonishingly affordable prices .India also provides a safe ,secured and transparent market for the telecom companies and moreover the investment policies and other lucrative incentives have made foreign collaborations possible and India one of the fastest growing markets. But the one factor that has perhaps made the maximum impact is competition. More and more companies are entering the telecom sector and with increased competition, new schemes are being introduced making it more and more economical for the consumers. Let us understand the effect of competition by considering the case of mobile telephone connections. Tata Dokomo recently introduced a 1Paise/second scheme on call rates and to maintain their consumer base competitors like Vodafone, Airtel, Idea had to follow suit. The lucrative SMS schemes are also a great hit especially with the youth.Roaming charges are also on an all time low. Just a couple of years back calling a friend in USA would surely burn a huge hole in your pocket but thanks to increasing competition and reducing call rates, you can talk to a friend in New York or Washington D.C for as less as 5 rupees per minute. Just Imagine!! Mobile phone manufacturers likeNokia, Samsung, Motorola are also slashing rates and now phones that were once available for a whooping INR 30,000, the base models are now available for as less INR 1,200. Truly Unbelievable!! Thus, in spite of the wholeglobal meltdown, the Indian telecom industry has just kept on growing. Moreover, with more and more services being offered like internet, MMS, 3G and loads of stuff, it is an even bigger incentive for the people.
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Well all this is the face of modern India. It has immensely helped in the development of both industry and economy. The economy has flourished with more foreign players entering the market, more foreign Direct Investment to mention a few aspects. The people also have undoubtedly benefitted from all this and mobile phones which were considered as only for the rich a couple of years ago are now spread all over. With rates being slashed, almost anyone and everyone can afford a mobile especially in urban areas.

So, is that all? Has the telecom sector reached its peak, its saturation point? Will we see a downward trend from here on in? Well absolutely not. There is still loads of potential in the Indian market and the growth rate of the telecom sector is going to be pretty encouraging for many years to come. The growth in rural markets is going to take centre stage with the urban markets almost stagnating. Operators will have to pay more emphasis on active and passive sharing. However, an adequate spectrum must be provided by the government if further growth is needed. The wireless subscriber base is also expected to grow and the fixed line base is to increase only on account of broadband growth. Mergers and acquisitions are also expected to happen and by 2012 there would be only a couple of major players. The mobile is also going to emerge as the principal means for internet access. More than 50% of the new connections will emerge from rural areas. In all this one thing is for sure, whether the world is in recession or not, whether there is a boom or not, the Indian Telecom industry is sure to boom!

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Telecom Sector in India 2009 Telecom sector is one of the fastest growing sectors in India and the fastest growing telecom market in the world, with a compound annual growth of 34% over the last decade. This impressive rate is a result of Indias economic growth and liberalization policy since 1991 and the fundamental, structural and institutional reforms during the period. Today, India has nearly 490 million subscribers and with an annual addition of more than 125 million over the last couple of years, India will reach 500 million subscriber-base in 2010. Among the various segments, wireless or mobile segment has been the key contributor, especially the prepaid services, offering a wide range of opportunities to provider and services to customers. Greater demand for better services and speed has made the market more competitive; as a result tariffs have been falling continuously across the board, making Indian tariffs one of the lowest in the world. Going forward, the sector is likely to achieve greater growth rates with a whole range of new services expected over next few years with the coming of 3G. This industry in India has undergone a revolution in the recent years. The country is ranked third worldwide in terms of having the largest telecommunication network, after China and USA. With the ongoing investments into infrastructure deployment, the country is projected to become the second largest telecom market globally in next few years. According to the analytical study on the sector "Indian Telecom Analysis (2008-2012)", mobile telephony, in particular, continues to fuel growth of the Indian telecom sector, with mobile subscribers projected to grow at a CAGR of around 15% between 2009-10 and 2013-14. Other segments of the industry such as Internet and broadband are also anticipated to witness huge growth rates in terms of both subscriber addition and network infrastructure deployment over the forecasted period. During the course of our research, we found that teledensity in India has improved in the recent years and reached 26.2 in the fiscal year 2007-08, owing to improving network infrastructure. The launch of advance telecom services like 3G and IPTV will also drive the growth in Indian telecom subscriber base over the forecasted period. Furthermore, mobile handset market also

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expected to register a robust growth in near future. In this regard, our report provides rational analysis of the factors which are driving the growth of mobile handsets market in India.

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5 YEAR PLAN FOR TELECOM SECTOR Issues requiring attention during the 11th Plan The emphases on infrastructure creation under the Telecom policies 1994 and 1999 have resulted in creation of international standard telecom infrastructure in the country. Increasing and sharing infrastructure is imperative for developing country like India to meet ambitious target. Moreover, considering the fact that 70% of the population lives in rural areas in India, for achieving larger telecom base, the focus has to be on telecom services in rural areas. In spite of rapid growth in Telecom sector, there is big gap between urban tele density and rural tele-density. As mobile services is going to be a key driver for increasing tele density in rural areas, there is need to optimize the usage of USO fund fully to roll out services in rural areas. To accelerate broadband connectivity, equipments need to be made available at the affordable price, by reducing duties on inputs and finished products at par with that of mobile services. The country should also benefit from full range of services that can be offered using the spectrum efficiently. FDI in Telecom sector has increased in recent years with value of 81.62 billion with share of 10% in total inflow during January 2000 to June 2005. This is mainly in telecom services and not in telecom manufacturing sector. Therefore, it is essential to enhance the prospect for inflow of increased funds. The NTP 1999 sought to promote exports of telecom equipments and services. But till date export of telecom equipment remains minimal. Most of the state-of-the-art telecom equipments including mobile phones are imported from abroad. There is thus immense potential for indigenous manufacturing in India. Certain measures like financial packages, formation of a telecom export promotion council, creation of integrated facilities for telecom equipment through SEZ and encouraging overseas vendors to set up facilities in India, are required for making India a hub for telecom equipment manufacturing and attract FDI.

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Focus of the 11th Plan The overall focus of the 11th Five Year Plan, therefore, with respect to telecom would be on evolving a strategy for the development of world class infrastructure for supporting accelerated growth of all sectors, bridging the digital divide, an optimum utilization of spectrum, focus on policy recommendations for promotion of private sector investment including FDI and to review the performance of telecom equipment manufacturing sector. Thrust Areas for the 11th Plan In consonance with the above approach, the thrust areas identified by Department of Telecom are: 1. Network expansion Provision of 250 million connections by 2007 and 500 million connection by 2010. Provision of mobile coverage of 85% geographical area by 2007. 45 MHz of additional spectrum from Defence to be made available for the growth of mobile services.

2. Rural Telephony One telephone per three households by 2007 (about 50 million rural connections) and one phone per two rural household by 2010 (about 50 million rural connections). Mobile access to all village with population of more than 1000 by 2007.

3. Broadband Broadband coverage for all secondary and higher secondary schools by 2007 Broadband coverage of all public health care centres by 2007 Broadband coverage for all Gram Panchayats by 2010

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4. Manufacturing and R&D Making India a hub for telecom manufacturing by facilitating more and more telecom specifics SEZs.1 Providing platform for export promotion of telephone equipment and services by setting up Export Promotion Council.

Specific physical targets for the 11th Plan: 1. 2. To reach a telecom subscriber base of 600 million. To provide 200 million rural telephone connections by 2012 i.e. to reach a rural teledensity of 25%. 3. To provide telephone connection on demand across the country at an affordable price. 4. To reach a target of 20 million broadband connections and 40 million internet connections by 2010 as envisaged in Broad policy 2004. 5. 6. 7. 8. To provide the broadband connection on demand across the country by 2012. To provide 3G services in all cities/town with more than 1 lakh population. To facilitate introduction of mobile TV. To provide broadband connectivity to every secondary school, health centre, Gram Panchayat on demand in two years. To make India a hub for telecom manufacturing by facilitating establishment of telecom specific SEZs

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Foreign Direct Investment in Telecom Sector One of the most significant contributors to Indias booming economy is the development of the services sector and the focus of Foreign Direct Investment in the Telecommunication sector. Over the past two decades, the service sector has expanded rapidly and has come to play an increasingly important role in national economies and in the international economy. Services account for large shares of production and employment in most Economies around the world. The share of services in world trade and investment too has been increasing. The reason why India was one of the fastest growing economies in the 1990s was due the rapid growth of the service sector. The structure of Foreign Direct Investment (FDI) worldwide has also shifted towards services. In the early 1970s, service sector accounted for only one quarter of the world FDI stock. In 1990 this shares was less than one half and by 2003, it has risen to about 67 per cent. Now service sectors like telecommunication, IT enabled services, electricity insurance, air transport are becoming prominent. As many services are neither tradable nor storable, but must be produced where they are consumed FDI is the dominant means of delivering them to foreign markets, states United Nation Conference on Trade, Aid and Development (UNCTAD). As another sectors, FDI in services can provide capital, technology and managerial knowledge, enhance skills. Since the introduction of `Manmohanomics during PV Narasimha Raos government in 1991, Foreign Direct Investment (FDI) has been looked upon as a tool to transform under developed countries into advanced nations. Since then every government has encouraged the expansion of foreign direct investment. The liberalization measures post-1990 has changed with foreign investments radically, now portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged. Initially Foreign Direct investment was introduced only in a few sectors but since then it has been introduced in a variety of sectors including the sector of Telecommunications. There are multi-faceted advantages of encouraging foreign direct investment in telecom sector. Apart from
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ensuring telecom services at subsidized prices, it can satisfy the dire need of infrastructural reforms in rural areas. The inflows will allow multiple benefits such as technology transfer, market access, improvement in voice and data quality and organizational skills. It increases the flow of foreign currency and helps in maintaining harmonious relationship with the country from which the investment is made. Moreover, India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. When the Indian government opened up cellular telephony to private industry, several foreign investors were ready to enter Indias telecom sector. However beating other manufacturing and services sectors, Indian telecom had attracted major inflow of FDI since August 1991. According to the numbers published by Investindiatelecom (an online agency which tracks developments in the Indian telecom sector), Indian telecom has grossed actual FDI worth Rs 9576.40 crore during the period starting from late 1991 to early 2003. Of the total FDI inflow in Indian telecom sector, the major share has gone towards investment in holding companies followed by cellular network and manufacturing and consultancy. While Hutchison Whampoa has a 49 per cent stake in Hutchison telecom, Vodafone has 21 per cent in RPG cellular and Verizon has ten percent stake in Reliance telecom. Other foreign companies with similar stake in Indian companies include AT&T Wireless, Cellnet and First Pacific. There are two possible channels for Foreign Direct Investment to enter into India: Firstly, the automatic route under which companies receiving Foreign Direct Investment need to inform the Reserve Bank of India within 30 days of receipt of funds and issuance of shares to the foreign investor and secondly, for sectors that are not covered under the automatic route, prior approval is needed from the Foreign Investment Promotion Board (FIPB). Recently, there has been a hike in the Foreign Direct Investment in the telecom sector and it has been increased from 49% to 74 %. This move seems to be positive for the sector, as it requires investments of Rs 700 900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world. The increase in the FDI limit is

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expected to usher in a 20 per cent jump in foreign investments in the telecom sector within the next two years from the current Rs10, 000 crore. There are restrictions related to remote access, transfer of network information outside India and international transit routing of Indian traffic. It has been decided to enchance the FDI in telecom services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the authority to restrict the license company from operating in any of the sensitive areas of the country. Foreign portfolio investments will be allowed in existing news channels within an existing 26 per cent cap on foreign investment holdings for that sector. This comes in time when there is a boom in the Indian stock markets as well and in the consumers section. This would clearly go on to attract several players in the telecom sector globally to look forward to investing in India. The highlights of the new policy are that Foreign Direct Investment up to 74% is permitted in the telecom sector. Internet service (with gateways); infrastructure providers (category-II); radio paging service etc. have been made subject to licensing and security requirements. FDI up to 100% permitted in respect of the following telecom services: Internet Service Providers not providing gateways, Electronic mail, Voice mail, Infrastructure providers providing dark fibre. FDI up to 100% is allowed subject to the stipulation that all such companies would confirm to divest 26% of their equity in favour of the Indian public within five years, if these companies are listed in other parts of the world. The above services would be subject to licensing and security requirements, wherever required. This increase in the FDI limit would see a sea change of investment flowing into India, and have a magnanimous effect on the telecom sector by way of economic reforms and also would affect the economy as a whole, and would have a chain effect on various other sectors. Due to the increase in the foreign direct investment in the telecommunication market in India companies like Bharti Tele-Ventures and Hutchison Essar will be able to modulate the foreign stakes in their companies that have already acquired a range between 67-69 percent of their assets. With respect to the unnerving growth in the telecom industry in India which accounted for nearly 30 percent every year, the Union Cabinet decided for the hike in foreign direct investment as it will benefit the country by facilitating the capital inflows in the industry. As of now acquires

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the largest share in the Indian telecom market has been acquired by the mobile segment as it has been estimated to witness a double rise in the past 2 years. It has been proclaimed by the Finance Minister of India, Mr. P. Chidambaram has that the decision about increasing the foreign direct investiture in the Indian telecom market have been decided as this sector is viewed as the capital intensive telecom sector and thus the aim is to draw more and more capital investments in this sector. Moreover the aim was also to make the whole system in the telecom market lucid and methodical. This proclamation has also notified that more than 49 percent of foreign direct investment has already been experienced by 2 companies in the telecom sector in India. The majority directors on the board that comprise of the Chairman, the Managing Director and the Chief Executive Officer should be non-migratory Indian citizens according to this proclamation on FDI in Indian Telecommunications Industry. The 74 shares occupied by the Indian telecommunication industry would involve all the foreign direct investments that have mainly come from the non-residential Indians, foreign currency convertible bonds, foreign institutional investors, convertible preference shares, and depository receipts on a direct and indirect basis. The companies that are receiving or will receive the foreign direct investment in the years to come are prohibited from transferring any sort of information or data apropos foreign direct investments or things related to that to the contributors or any destinations outside India. The step taken for the increase in the FDI in Indian telecom industry will boost up the country's economic condition. Post 1991 one of the major contributors in the accretion of India's economy is Foreign Direct Investment and thereby it has been highly needed by each sector in Indian telecommunications industry. As of now the telecom sector requires 1, 60,000 crores for development purposes among which 30,000 is coming from the local markets. FDI in services responds well to openness especially when it comes to the telecommunications sector. This is quite evident looking at the recent boom in the Indian Telecommunication sector. Further liberalization of services involves potential advantages for Indian economy. Benefits can arise from increased competition, lower prices, and better quality of services. FDI in services like Telecommunications provide key inputs to other productive activities that lead to further investment and competitiveness of an economy. Efforts should be made towards attracting
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efficiency seeking FDI through a right policy that expands operation, improve local skills, establish linkages and upgrade technology However, precautions should be taken to avoid the risk of foreign investors out-competing domestic investors especially in case of infrastructure services like Telecommunications. Services where domestic investors are not able to cater to the growing demand, or where domestic service-providers do not have the ability or capacity to provide the required quality of services, are where the least barriers exist. To circumvent such spirals it is important for the region to have appropriate domestic regulations in place, which will assure better quality of services at affordable prices. Clear domestic regulations increase transparency in the system and encourage foreign direct investment. To sustain the momentum of growth in services trade in the region, conscious efforts should be made to improve the competitive advantage of the region as a whole. Measures to be taken by the govt to attract fdi:Inclusion of trade in services in SAFTA may help attract FDI in services and lead to greater intra-regional trade. Access to more efficient services could lead to higher growth in productivity in other sectors, which, in turn, could improve the overall competitive strength of the region. Thus it can be concluded that the recent upward swing in the Telecommunications sector in India is due to the introduction of FDI in this sector by the Indian Government since 1991 but at the same time we must also be careful and not get carried away by this development and should have proper regulations in place to actually utilize this situation to our advantage. India needs a liberal policy on telecom sector along with a stronger role of the regulator to control the activities of each operator.

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FDI can enter India through two possible channels: The liberalization measures post-1990 have changed with foreign investments radically, now portfolio as well as Foreign Direct Investment are not only allowed but also actively encouraged. During the decade of the nineties, the 'ceilings' on FDI in different sectors were progressively raised. In 2001, 100 per cent foreign investments were allowed in several industrial sectors. Also, 100 per cent Foreign Direct Investment is allowed in almost all the infrastructure sectors. * The automatic route under which companies receiving Foreign Direct Investment need to inform the Reserve Bank of India within 30 days of receipt of funds and issuance of shares to the foreign investor * For sectors that are not covered under the automatic route, prior approval is needed from the Foreign Investment Promotion Board (FIPB). The foreign direct investment in telecom has been hiked up from 49% to 74%. This move is positive for the sector , as it require investments of Rs 700 900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan telecom are likely to enter India, as India is seen as fastest growing telecom market in world. Their is restrictions related to remote access, transfer of network information outside India and international transit routing of Indian traffic. It has been decided to enchance the FDI in telecom services in areas like basic telecom, cellular unified access services, Nat /intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the authority to restrict the license company from operating in any of the sensitive areas of the country.

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Effect of FDI in Telecom

Telecom service at Subsidized prices FDI inflows will allow multiple benefits such as technology transfer, market access and organizational skills.

In India where 70% of population still resides in rural areas, there is a dire need of infrastructure in telecom, which FDI can provide.

Foreign currency flowing in the country Harmonious relationship with country from which foreign investment is being made There will be increase in competition with local players, which will benefit consumers It will have a multiplier effect Telecommunication facility at reasonable price, affordable to many More technological inflow, will improve voice & data quality Free flow of capital is good for Indian consumer

Guidelines/Rules for FDI in Telecom Sector: In basic, cellular, value added services and global mobile personal communications by satellite, FDI is limited to 49% subject to licensing and security requirements and adherence by the comapanies (who are investing and the companies in which the investment is being made) to the licence conditions for foreign equity cap and lock- in period for transfer and addition of equity and other licence provisions In ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74% with FDI, beyond 49% requiring Government approval. These services would be subject to licencing and security requirements No equity cap is applicable to manufacturing activities iv) FDI upto 100% is allowed for the following activities in the telecom sector :

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a. ISPs not providing gateways (both for satellite and submarine cables) b. Infrastructure Providers providing dark fibre (IP Category1) c. Electronic Mail; and d. Voice Mail The above would be subject to the following conditions: a. FDI up to 100% is allowed subject to the condition that such companies would divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world b. The above services would be subject to licensing and security requirements, wherever required c. Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis. Subject to the conditions that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies were listed in other parts of the world. In telecom manufacturing sector 100% FDI is permitted under automatic route. The Government has modified method of calculation of Direct and Indirect Foreign Investment in sector with caps (Press Note 2 of 2009) and have also issued guidelines on downstream investment by Indian Companies. Press Note 4 (2009) Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities have been issued Press Note 3 (2009)

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2010 Budget Telecom Industry Expectations

The Telecom industry of India is on the edge of becoming the second biggest telecom sector in the world with an overall compactness of telecommunications of upto 47.89%. In the year 2009, the industry attracted subscribers of over 562.21 million which was 3.5% greater than its previous year, as per Telecom Regulatory Authority of India (TRAI) report. The Indian telecom industry registered annual revenues of over US$ 8.57 billion in 2009 triggered by the revival in incomes from landline and mobile services. By 2014, the industry is anticipated to surface as the highest element in the nation's GDP by contributing upto 15.5%.

Currently, the telecom industry is on an expansion spree and is adding 9-11 million cellular phone subscribers per month. With this pace the sector is estimated to cover more than half of the nation's population by 2012. 2010 Budget Telecom Industry Expectations are re-introduction of tax exemptions in context of system rollouts in rural districts and to telecom infrastructure service providers, tax relief to businesses undergoing reformatting mentioned in provisions under Section 80IA (12A) by the Finance Act, 2007, special additional duty (SAD) compensation, accessibility of Cenvat Credit in case of relocation of the business, tariffs of not upto 0.5-2% and explanation on tax reduction of entire spectrum charge. Rural penetration of telecom sector The rural market is seen as the next revenue generator for the telecom industry. In this context, some of the incentives that the Budget could provide are extension of tax holiday to block of 20 years, exemption of Special Additional Duty on import of network equipment, rationalization of levies and reduction of overall tax burden on the industry. Source: - The Daily News and Analysis

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Budge

Telecom tariffs have come down significnatly and so does the profitability of the country's top telecom firms. But despite that the government has budgeted a little more than Rs 48,000 crore from the sector for this fiscal which includes Rs 13,300 crore as licence fee and spectrum charges, and Rs 35,000 crore from 3G and Wimax auctions. The sector will also contribute a large amount as service tax. However, with the 3G auction issue yet to be resolved there is still uncertainity on whether the government will finally be able to get the budgeted amount or not. Telecom companies meanwhile are looking for relief from the government which has been their demand from last two years. Various taxes constitute almost 30 per cent of their expenditure and most South Asian countries pay half of that as taxes. While in some countries the incidence of tax is lower than 10 per cent. Telecom companies are demanding a cut in licence fees and spectrum charges promising to pass on that benefit to subscribers. But that could just be wishful thinking because the government is strapped for cash and will not like to see anymore loss of revenue from a cash-cow sector like telecom. In fact, the government is presently looking to bring in a uniform licence fee for all telecom services. The uniform fee may be fixed either at 6 per cent or 8 per cent and its basic purpose is to avoid any revenue leakage due to misreporting. The government is also looking at hiking spectrum charges and auctioing even 2G spectrum to get more revenue from telcos. Further, taxing tower companies may also be taken into consideration.

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Even telecom equipment manufacturers may get little in terms of tax benefits that is ironical since the government though harping on localising equipment manufacturing has done little to encourage hardware manufacturing in India. Even as DoT and finance minstry try to resolve the 3G tangle to help bolster the government's fiscal deficit and with a view in the government that many telcos may be under-reporting their revenues to escape paying the government its dues, there is little chance of the finance minister's bounty flowing its way. Post budget impact analysis: Telecom Sector Background Growth of Wire-line and Wireless services Telecommunications has emerged as one of the key sectors responsible for India's resurgent economic growth. The sector was relatively untouched by the economic slump that beleaguered India in the FY09 and the early part of FY10. The telecom policy objectives focus on network expansion, rural telephony, roll-out of 3-G services, enhanced broadband coverage, R&D, domestic manufacturing of telecom equipment and a supportive environment for the competitive growth of the sector. Rural and Semi-urban India are the next target for most telecom companies since urban India has been largely tapped. ARPUs are expected to decrease further as rural subscriber base increases but volumes are expected to slightly compensate for the fall in ARPUs. FY10 witnessed the launching of services by the new operators in collaboration with their foreign partners who have technical expertise as well as financial strength. The sector has seen a fall in margins for most of the existing players due to intense competition. The success of these operators would be determined by the spectrum allocation policy of the Government of India (GoI).

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The outstanding issues before the GoI include additional spectrum allocation for 2G, fresh spectrum allocation for 3G and WiMax, multiple levies on the sector, increase in rural connectivity and mobile number portability. Budget Proposals 1. Full exemption from basic customs duty and CVD to components for manufacture of battery chargers. 2. Components of Hands-free headphones of mobile handsets including cellular phones are also fully exempt from customs duty and CVD. 3. The validity of the exemption from special additional duty on mobile phones is being extended till March 31, 2011. 4. The Minimum Alternate Tax (MAT) has been increased from 15% in 2009-10 to 18% in 2010-11. Budget Impact Industry 1.The exemption from basic customs duty and CVD to components for manufacture of battery chargers and hands-free headphones of mobile handsets will make the mobile phones cheaper which in turn will have a positive impact on their demand. 2. The increase in MAT from 15% in 2009-10 to 18% in 2010-11 may adversely impact the telecom service providers as they may have to pay higher taxes. Union Budget 2010: Key proposals for telecom (Source : Moneycontrol.com) Sectoral inputs for Telecom The extension of exemption from customs duties to include sub-parts and parts of hands-free head phones of mobile handsets and battery chargers and the proposal to increase the weighted deduction for in-house research from existing 150% of the expenditure to 200% should be a boon for local manufacturers. However, increase in excise duty from 8.24% to 10.30% will increase the prices to the consumers.

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