"Reforms and relaxation in foreign investment in the broadcasting sector, brought in vide the Press Note 7 dated Sep 20, 2012, will be truly effective only when their implementation is swift and not marred by administrative delays."The Indian television broadcasting sector has come a long way from being a government monopoly, which was rescinded in 1995 by the Supreme Court of India in...
"Reforms and relaxation in foreign investment in the broadcasting sector, brought in vide the Press Note 7 dated Sep 20, 2012, will be truly effective only when their implementation is swift and not marred by administrative delays."
The Indian television broadcasting sector has come a long way from being a government monopoly, which was rescinded in 1995 by the Supreme Court of India in The Secretary, Ministry of Information & Broadcasting v. Cricket Association of Bengal [1995 SCC (2) 161]. However, until now the Government of India had maintained a strict vigil over the broadcasting sector in India by providing low foreign investment caps and requirements for prior governmental approval for most investments beyond 49%, wherever permitted. Broadcasting has the ability to influence public opinion, accordingly, the concerns of the Government to scrutinize and limit foreign investment in such a sector is understandable.
However, the earlier policy made little distinction, in terms of permissibility between the actual broadcast by TV channels, FM radio, etc. (i.e. "Content") and the infrastructure used for such broadcasting such as teleport, cable network, direct to home platform (DTH) etc (i.e. "Carriage"). With the growth of the broadcasting sector, the need for expanding the infrastructure to carry Content gained heightened attention. However, the cap and conditionality on foreign investment for Carriage resulted in several constraints on funding, affecting the growth of Carriage infrastructure.
The Telecom Regulatory Authority of India (TRAI) recognised such constraints and put forth the concept of, distinguishing between Content and Carriage in its consultation paper on foreign investment limits for broadcasting sector. TRAI also mooted the idea of different limits on foreign investment for Content and Carriage. Such a concept, after the approval of the Government of India has resulted in Press Note No. 7 of 2012 dated September 20, 2012 ("Press Note"), which has increased the foreign investment limit in most of the carriage service from 49% to 74% with immediate effect.
Increase in Foreign Investment Caps
Through the Press Note, the Government of India has increased the limit for foreign investment in an Indian company engaged in the business of teleports, direct to home (DTH); and cable networks from existing 49% to 74%. However, any investment above 49% requires prior governmental approval. It is also relevant to note that increased limit for foreign investment in cable networks has been limited to multi service operators (MSOs) operating at national or state or district level and undertaking upgradation of networks towards digitalization and addressability.
Foreign investment in other MSOs and in local cable operations continues to be limited at 49%. The foreign investment cap for mobile TV has also been increased upto 74%, where similar to the case above, any investment above 49% requires prior governmental approval. It is worthwhile to point out that the aforementioned limits are not only for foreign direct investment but also include investment by foreign institutional investors and non-resident Indians and includes investment through foreign currency convertible bonds, American depository receipts, global depository receipts and convertible preference shares held by foreign entities.
With respect to Content services, the foreign investment limit has remained unchanged as 26% with Government approval route in terrestrial broadcasting, FM radio and uplinking of news and current affairs television channels and 100% with Government approval route in uplinking of non-news and non-current affairs television channels.
It is also relevant to note that prior governmental approval is not the only conditionality for foreign investment in Carriage companies and there are several other eligibility requirements to be able to make such investment. Further, through the Press Note, the Government of India has introduced some additional conditionality as discussed below.
Prerequisites for Appointment of Directors and Key Executives
As mentioned above, in terms of the revised investment limit, foreign investment upto 74% is permitted in Carriage services. However, interestingly the Government of India has mandated in the Press Note that the majority of the board of directors of the company, in which the foreign investment is being made, should comprise Indian citizens. This condition may cause a precarious situation for foreign investors as generally, 74% shareholding entitles a shareholder to appoint majority of directors on the board. In such situations, a foreign company with 74% shareholding in an Indian carriage company may find it difficult to find suitable Indian candidates who may be nominated as directors. It is also relevant to note that the Press Note does not specify that such Indian citizens have to be 'residents' as is the requirement for Key Executives (discussed below). This may imply that Indian citizens, even if residing in a foreign country, may be eligible for appointment as directors.
Similar to the restriction on the board composition, the Press Note also requires that the Chief Executive Officer (CEO), Chief Officer In-charge of technical network operations and Chief Security Officer should be "resident" Indian citizens. This policy may have been well intended but in practice, such prerequisites may hinder foreign players in Carriage services from bringing experts from outside to introduce international best practices in India. In any event, there is an additional requirement for security clearance of such personnel before their appointment. In such cases, the requirement for such personnel being "Indian citizens" may not have been warranted.
Additional Requirements of Security Clearance and Permission
Security clearance is not a new concept in the Indian broadcasting space and has always been an Achilles heel for appointment of foreign directors with the clearance being protracted for several months in certain cases. The Press Note has expanded the categories of persons requiring such security clearance. Hitherto, security clearance is required for (i) the company; all directors on the board of directors; certain key executives like managing director / chief executive officer, chief financial officer, chief security officer, chief technical officer, chief operating officer ("Key Executives"); (ii) shareholders, who individually hold 10% or more paid-up capital in the company and any other category, as may be specified by the Ministry of Information and Broadcasting ("MIB") from time to time; and (iii) all foreign personnel likely to be deployed for more that 60 days in a year by way of appointment, contract, and consultancy or in any other capacity.
In addition to security clearance, a permission from MIB is also required for appointment of key Executives and the directors or any change in board composition.
Further, the permission and licence granted by the MIB for broadcasting carriage services has been made subject to the conditions as set out below:
A. The permission holder/ licensee remains security cleared during the validity period of permission. If the security clearance is withdrawn then the permission granted by the MIB would be liable for termination immediately; and
B. If the security clearance of any of the persons associated with the permission holder/licensee or foreign personnel is denied or withdrawn for any reasons whatsoever, then the permission holder/licensee will ensure that the concerned person resigns or such a person's service is terminated directly after receiving such directives from the Government, failing which the permission/licence granted shall be revoked and the company shall be disqualified to hold any such permission/licence in future for a period of 5 years.
Welcome Reforms, Subject to Implementation
The reforms, even with conditions, are a welcome step toward further liberalisation. However, the reforms and relaxation in foreign investment limits would be truly effective only when their implementation is swift and not marred by administrative delays. As mentioned above, in the past, obtaining security clearance had been a tedious exercise resulting in severe delays. Such delays directly impact the ability of a foreign investor to appoint its nominee directors on the board and act as an impediment to foreign investment. Also, appointment of a person already serving on the board of one Indian company after obtaining security clearance, to the board of a different Indian company also necessitates approval. Further, it may not always be possible for the foreign investor to scout for Indian talent for appointment.
In such cases, firstly, the Government may consider relooking at the policy and permitting appointment of foreign nationals after requisite security clearance, secondly, it is suggested that the government should endeavour to reduce the time frame for granting approval for appointment of directors and key executives. Further, with respect to the directors who have been granted security clearance once, there should be some mechanism to avoid obtaining security clearance for their appointment in another company. This may be achieved by linking the security clearance to the Director Identification Number (which is a one-time mandatory identification number issued to every director of an Indian company). With respect to key executives, the security clearance may be linked with their personal identification documents and/or visa so that the time frame for granting such approvals may be reduced.
Despite such conditionality, the Press Note would provide a much needed boost to the Carriage services in India. Specially in the field of cable network, where digitalization has been made mandatory through the Cable Television Networks (Regulation) Amendment Act, 2011 and there is a substantial need for funds for migrating cable networks from an analog system to a digital and addressable system. In this regard, foreign investment in cable networks will be helpful in getting more capital funds at more competitive rates and it will also bring world-class technology and international best practices.
Disclaimer–The views expressed in this article are the personal views of the author and are purely informative in nature.