While the disappointing run in the telecommunications industry’s foreign direct investment (FDI) continues, slight uptick was witnessed in 11MFY23 figures. The latest data from the central bank show that the industry’s net FDI (inflows less outflows) was only $7.9 million in the first eleven months ended May 31, 2023, compared to negative $33 million in net FDI in the same period of the last fiscal. Net foreign direct investment settled at $33.8 million in May-23 a decline of 9 percent year-on-year.
Net foreign direct investment in the IT industry also witnessed a significant decline of 72 percent year-on-year in 11MFY23 to $37 million. While the net inflows in May stood at $2.4 million, down by 52 percent year-on-year.
With weaknesses in attracting FDI, the telecom sector’s investment has been down as the industries in general have been struggling to show growth. FDI in the country has been miniscule with only $1.3 billion coming in 11MFY23 – down by 21 percent year-on-year. Excluding Telecom and IT sector investment, net FDI in the country was around $1.2 billion in 11MFY23 – down by 18 percent year-on-year. In the last one decade, the share of communication sector FDI in the country’s total FDI has had a topsy turvy ride – rising in years of e.g., spectrum auction - as high as 24 percent in FY20 – and falling into negative territory in other years.
Even before the recent macroeconomic turmoil in the last one year and the COVID slowdown before that, the investment landscape particularly of the telcos has not been yielding. As mentioned before, the major frequency spectrum auction, there has been no sectoral development measure and hence FDI in the sector has remained weak. Moreover, the timing of the spectrum auction has also got to do with the government looking for forex in the country – and less with the operational and sectoral development needs of the sector.
Even the sector’s profit margins are under duress due to weakening purchasing power and communications pending in recent times amid rising energy prices and expensive backup in outages. Also the import restrictions on machinery for the sector have been a hindrance in the operating environment, while the sponsors have been hit by currency depreciation in shape of weaker returns as well as massive delays in profit repatriation due to government restrictions. The pace has highlighted many times that the prospects of a revival in net FDI are going to be very low in FY23, and the recent quarter has shown that. The same is likely to continue in the coming month with net FDI in telecom sector remaining weak and dull. Some are banking on the big spectrum auction in the coming fiscal year, but the challenges of the sector and economic and political situation in the country remains the biggest stumbling blocks. The agreement with the IMF might bring back some a short lived hope among the multinational organizations in the sector and in general across the economy, but a revival in FDI needs much more than that!
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