On Tuesday, Norway’s Information Technology Minister Rigmor Aasrud met her Indian counterpart, Kapil Sibal, in New Delhi to stress the need to protect Oslo-based Telenor’s nearly $3 billion investment in India’s telecom sector.
“We have mentioned the Telenor case. We had fruitful discussion,” Aarud said.
Telenor was one of the overseas companies which made a deal with a domestic company to enter India’s fast growing mobile phone sector in 2009, after India liberalized rules for foreign investors.
But these investors are worried after a Supreme Court judgment last week scrapped 122 telecom permits issued by the government in 2008 because they were supposedly “under-priced and rigged.”
Telecom licenses lie at the heart of India’s biggest corruption scandal. They were awarded in a process that apparently favored some domestic companies. Some of the original buyers later sold them at hefty profits to foreign investors such as Telenor, Gulf-based Etisalat and Russia’s Sistema.
Government auditors estimate that the country lost $40 billion because of the flawed auction process.
Companies like Telenor have protested, saying they have been “unfairly harmed”, and asking why would foreigners invest in India if they could not trust the rules and conditions.
In New Delhi, Rishi Sahai at consulting firm Cogense Advisors said the recent judgment has raised new uncertainty about India as an investment destination. Foreign investors eyeing the country will worry that investments made following all rules and regulations could be at risk for no fault of theirs, he said.
“The issue is that these are sovereign licenses and if a court can come and change decisions three years down the line, then what happens to investments already made? And people are going to be especially more concerned in sectors such as aviation and insurance, which are opening up, as to whether courts in this country can come and overrule sovereign licenses. So there is a level of skepticism and the government needs to take some steps to protect foreign investments for these companies,” Sahai said.
The Supreme Court has ordered that new telecom licenses to replace those scrapped should be sold in an open auction and not on a first-come-first-serve basis as before.
Some analysts feel that, in the long term, the Supreme Court judgment will ensure that the investment climate will improve by guaranteeing the government follows a more transparent path.
N. Bhanumurthy, a senior economist with the National Institute for Public Finance and Policy in New Delhi, calls it a “one-off case.”
“It is one way of cleaning the overall governance system,” he said. “It needs to be taken in a very positive way.”
Telenor, which claims 36 million customers in India, has said it may bid for new licenses, but could also consider exiting as an option.