India Market Watch: 100 Percent FDI in Broadcast Services, Banking Support for Startups, and Stalemate in RCEP Negotiations
100% FDI Now Allowed in Broadcast Carriage Services
New foreign direct investment (FDI) rules, as announced on June 20, will allow 100 percent foreign investment in the broadcast carriage services, benefiting direct-to-home (DTH) operators, cable networks, headend-in-the-sky (HITS) platforms, and mobile TV operators. More importantly, 100 percent FDI in this sector can now be secured via the automatic route – without seeking approval from the Foreign Investment Promotion Board (FIPB). Previously, the government had raised the FDI limit from 74 percent to 100 percent, but only 49 percent FDI was allowed through the automatic approval route.
The new FDI policy will open up fiscal and tax incentives for cable networks who have been bearing the brunt of the costs of digitization as pushed by the government in the last few years. However, the sector has suffered from a negative investment outlook due to many other reasons as well. A number of court cases and stay orders have disrupted the digitization process (or the deployment of set-top boxes) and the broadcast services market continues to be highly fragmented. Moreover, the average revenue per user is also quite low at around US$ 2.57 (Rs 175) per month for a DTH operator, US$ 2.21 (Rs 150) for a digital multi-system operator (MSO), and US$ 1.32 (Rs 90) per month for cable operators in areas without digital addressable systems (DAS). According to the Telecom Regulatory Authority of India (TRAI), India has seven DTH firms, two HITS platforms, 700 MSOs and 60,000 cable operators.
The government will therefore need to consolidate the sector, and address real operational and regulatory concerns as well as the valuation of cable and DTH to boost FDI inflows.
Indian Startups Receive Support from Banking Sector
Banks have started to identify India’s startup ecosystem as an important driver of economic growth. India also enjoys the position as having the third most conducive ecosystem to innovate in the world, according to some estimates. Along with a growing number of female founders and co-founders, more than 72 percent of India’s startup founders are less than 35 years old.
Responding to the sector’s growing needs and in response to the government’s pro-startup directive, Indian banks have begun to provide support through technological and financial solutions for budding companies. Banks are now engaging in designing customized schemes, such as offering more flexible loan rates, to cater to the unique business models of startups. Another development in this regard is the API banking platform, which promotes the digitization of business-to-business (B2B) transactions by integrating client and banking systems to make transactions seamless and efficient. Banks have also innovated ways of raising funds for startup businesses. Small savings can now be transmitted to business owners as seed capital. Specialized institutions and schemes also encourage the development of ultra-local and small firms with the help of microfinance. The India Aspiration Fund (IAF), Self-Employment and Talent Utilization (Setu), Atal Innovation Mission (AIM), and the Micro Units Development and Refinance Agency Bank (MUDRA Bank) are examples.
China and ASEAN Reject India’s Proposed Three-Tier Market Access to RCEP Members
The second to last round in the discussions over the Regional Comprehensive Economic Partnership (RCEP) have been taking place this June, and trade tariffs continue to be a major sticking point for Indian negotiators. The RCEP, with 16 member countries, aims to be the largest free trade association in the world – providing equal market access to all within its bloc. This would require aggressive and uniform dismantling of trade tariff barriers that India has persistently opposed.
India has instead proposed a differential tariff relaxation framework in negotiations with RCEP members (ASEAN states, Australia, China, Japan, South Korea, and New Zealand). This three-tiered system would offer the highest market access to ASEAN (80 percent), followed by free trade agreement partners South Korea and Japan (65 percent), and finally, the lowest relaxation for China, Australia, and New Zealand (42.5 percent) with whom New Delhi has not signed free trade pacts.
This differential system, however, goes against the principal objective of the RCEP, i.e. providing equal market access, and has been rejected by China and ASEAN. Time is also running out as the concluding RCEP ministerial meet will be in August where participating countries expect the final offers to be sealed. On the other hand, India is concerned, and with reason, that removal of tariff barriers for China would damage its indigenous industry. Furthermore, while China dominates trade with the ASEAN states, India already has a growing trade deficit with China, which reached US$ 52.65 billion in 2015-2016 (one-third of India’s total trade deficit).
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