New Delhi: Idea Cellular Ltd’s proposal to allow up to 100% foreign direct investment (FDI) in the company is under consideration of the Department of Industrial Policy and Promotion (DIPP), an official said.

The proposal assumes significance against the backdrop of pending merger of Idea Cellular Ltd and Vodafone India to form the country’s largest telecom operator. The present FDI policy allows an overseas firm to buy up to 49% stake in an Indian telecommunication company under automatic approval route. But government’s approval is required for stake above 49%.

Idea and Vodafone in 2017 announced that they would combine their operations to create the country’s largest telecom operator worth over $23 billion, with a 35% market share.

Foreign share holding in Idea as on 31 March, 2018, stood at around 34%, including 7.49% in promoter group and the rest as public shareholders. While British telecom multinational Vodafone Group Plc is a majority shareholder in Vodafone India. Foreign shareholding in the combined Idea-Vodafone entity, thus, would breach the automatic approval limit of 49%.

According to the Idea-Vodafone merger announcement, Vodafone would own 45.1% of the combined company after transferring a 4.9% stake to Aditya Birla Group for Rs3,900 crore in cash, concurrent with completion of the merger.

“We have received the proposal from the Department of Telecommunications. As the department has added a condition in the proposal, the matter has been referred to the DIPP. It is under consideration of the department," a government official said.

The telecommunications department is awaiting the views of the DIPP on raising FDI limit in Idea Cellular Ltd to 100%, before approving its merger with Vodafone India. “Only FDI clearance for Idea is pending before the proposed merger with Vodafone (India) can go through," another government official said.

After the abolition of foreign investment promotion board, respective departments and ministries of 11 sectors, including telecommunications and print media, are competent authorities for approval of FDI proposals unless they want to add some condition or reject the proposal. In such circumstances, they have to seek the views of the DIPP.

The merged Idea-Vodafone entity will have highest subscriber base of 41 crore accounting for over 35% market share and second largest spectrum holding of 1,850 megahertz in the country. The merger is expected replace Bharti Airtel from its numero uno position in terms of number of subscriber base, as per reports of the Telecom Regulatory Authority of India (Trai).

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