World Dialogue on Regulation

The national political infrastructure (political institutional, and legal environment) of a country helps to define its investment environment and thus the economic growth prospects. In this paper we attempt a micro study to test this hypothesis in the context of the Indian Telecommunication sector. The Indian Telecommunication Sector provides a classical case study of how regulated telecom operators and potential investors include “regulatory risk” as a key factor in determining their investment strategies. 

Over the past few decades, the changing technological and economic scenario has imparted an element of competition to the sector. With commercial activities like banking and international finance becoming critically dependent on global information and efficient electronic exchange, the demand for telecommunication services has grown rapidly. The abysmal performance of the state-owned telecom service providers and the increasing need to attract capital for the upgradation of the sector has merely served to hasten the process. In fact the National Telecom Policy 1994, estimated a resource gap of Rs. 23,000 crores to meet the telecom targets of the eighth five-year plan of the Government of India (1992-97). 

INTRODUCTION

The national political infrastructure (political institutional, and legal environment) of a country helps to define its investment environment and thus the economic growth prospects. In this paper we attempt a micro study to test this hypothesis in the context of the Indian Telecommunication sector. The Indian Telecommunication Sector provides a classical case study of how regulated telecom operators and potential investors include “regulatory risk” as a key factor in determining their investment strategies. 

Over the past few decades, the changing technological and economic scenario has imparted an element of competition to the sector. With commercial activities like banking and international finance becoming critically dependent on global information and efficient electronic exchange, the demand for telecommunication services has grown rapidly. The abysmal performance of the state-owned telecom service providers and the increasing need to attract capital for the upgradation of the sector has merely served to hasten the process. In fact the National Telecom Policy 1994, estimated a resource gap of Rs. 23,000 crores to meet the telecom targets of the eighth five-year plan of the Government of India (1992-97).

The false starts to liberalisation due to a flawed policy with misplaced objectives and the absence of a regulatory institution, followed by some stability with the National Telecom Policy’99 (NTP ’99), have had a great impact on the level of competition and investment in the Indian telecommunication sector. The relationship between the telecom regulator and the government has also posed many contentious issues. In many instances, it has been seen that the government is reluctant to surrender political control over regulatory decisions and the notion of agency independence has actually proven to be unreal. The deregulation of the sector has thrown up many issues that need policy direction and to this end a GoM has been set up in September 2003 to create a climate conducive for private investment.