BANGALORE, India-Foreign investors are reconsidering their investments in India, with press reports naming several European and U.S. companies lining up to back out of operations there.
Swisscom, the Switzerland-based telecommunications operator, decided to pull out of its joint venture with Essar group of India several months ago and has left the country.
AT&T plans to pull out as well and has frozen all future investments. According to sources in Birla AT&T-a joint venture with AV Birla Group that provides cellular service in Maharashtra, Gujarat and Goa-the U.S. company is considering a pullout “due to unfriendly telecom policies.”
In addition, sources say Telia of Sweden wants to exit from JT Mobiles, Bell Canada may bid adieu to the Tatas, and U.S.-based BellSouth International made clear its intention to sell equity in the Chennai provider Skycell.
The multinational companies do not think the Indian telecom market has developed as anticipated. Reasons include an unfavorable regulatory environment, low customs uptake, high license fees, lack of clarity in the Indian telecom environment and an overly optimistic assumption at the outset.
India is trying its best to woo foreign investors. The fact that India is a developing country with a huge population promises potential future markets, but is that enough for foreign players to continue to invest in the country?
India needs to improve its systems, say industry observers. Transparent systems, good infrastructure, favorable structure of sales tax, low import duties, stable politics, are some of the things that play a significant role in investment decisions. Therefore, observers say, the government has to take immediate steps to reduce-if not remove-corruption, improve infrastructure, and modify tax laws.
The Indian market has been characterized by low airtime usage. Bad debt is also an issue, with collection a major problem for all operators. The result has been that, in many circles, the licensed operators have been unable to secure project funding; in others, the low returns are causing the breakup of consortia, as foreign partners lose patience and bail out.
The strategies of the multinational companies reflect the market reality most industry players are faced with: uncertainty. Because the companies’ departures are a reaction to the crisis in the Indian telecommunications market, other investors may follow suit if the government does not intervene.
