Role of Foreign Direct Investment in the Growth of Indian Telecom Sector: An Econometric Analysis

Abstract

The Government of India has undertaken various policy initiatives for the growth of telecom sector in the country such as regulatory liberalisation, structural reforms and gradually raising the Foreign Direct Investment (FDI) limit to 100%. Due to these policies adopted by India since 1991, the Indian telecom sector has made tremendous progress and FDI has been one of the main drivers of the continuous growth in the sector. FDI is a good policy instrument in the hands of governments of developing countries to remove the financial constraints and improve the supply of telecom services in their countries. The present study has examined the role of FDI in the growth of the Indian telecom sector in terms of telecom sector revenue, internet access and subscriber base over the period 1991–2018, by applying the cointegration technique- Auto-Regressive Distributed Lag approach and Toda-Yamamoto method of Granger Non-causality test. The empirical findings reveal that FDI inflows do not impact the telecom sector revenue, internet access and subscriber base in the country both in the short-run and in the long-run, thereby, playing a submissive role in the growth of the sector. However, while making investment in the Indian telecom sector, the foreign investors take into consideration the telecom sector revenue and internet access available in the country because growth in revenue generates more profits for foreign firms and an expansion in internet access facilitates them to do business in a host country.

Keywords: Privatisation, Foreign Direct Investment, Indian Telecom Sector Growth, Auto-Regressive Distributed Lag Model, Toda-Yamamoto Model

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