FDI in Indian media: How the scene changed since post liberalization

If one tries to look microscopically into the FDI in Indian media then the story would go back into the era of the British Raj. But for all practical purposes, the year 1991 is recognised as the year when FDI was introduced into the Indian economy by the then finance minister Manmohan Singh. In his landmark annual budget speech, he introduced ‘big bang reforms’ in India’s economy which allowed it to become Liberalized, Privatized and Globalized. That’s why these reforms are still popularly referred to as ‘LPG reforms’. The very same reforms opened the doors for Foreign Direct Investment in India.

Foreign direct investment (FDI) plays a huge role in terms of running the media industry. FDI is about controlling ownership in a business enterprise in a country by an entity based in another country. Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from the overseas operations and intra-company loans. In a narrow sense, foreign direct investment refers to just building new facilities and it usually involves participation in the management, joint- venture, and transfer of technology and expertise.

FDI in media: The scenario post liberalisation (1991-2000)

When FDI started coming in various sectors of the Indian economy, it impacted the Indian media in a big way. The Government of India approved 26 per cent FDI in print and 49 per cent FDI is TV media in 1991 . Cable TV in India owes its existence to the coming of FDI. Before 1991, the Indian audience only had Doordarshan to watch which is India’s national broadcaster. The fruits of FDI in media were first taken by media groups like STAR (Satellite Television Asian Region) and ZEE (Zee Entertainment Enterprises Ltd)( Earlier Zee Telefilms Ltd ( ZTL) networks. Gulf War became the first big thing to be watched by millions in India because of the opening up of sky waves by the Government of India.

FDI was allowed in India via two different routes. The first one was the automatic route while the second one was the government route. In the first route i.e. the automatic route, the FDI has been allowed without prior approval by the government or Reserve Bank of India. While in the second route, the government’s prior approval is a necessary requirement. The Government of India had allowed 26 per cent FDI in print publications which include newspapers and magazines. When this happened, suddenly more money started to flow into the newsrooms, and the journalists started getting better salaries thereby increasing financial security to some degree.

Throughout the decade of 1990s, more and more channels started to sprout up on Indian Television. Zee group and New Delhi Television (NDTV) Limited got a chance to tie up with STAR network thereby making a big space for itself in the news business . Privatization in the television sector along with the big flush of foreign investment which was not just about the money, but workforce and skills as well allowed a great amount of manoeuvrability for the private players in India to become more creative in their outlook.

As a result, the audience found this attractive and saw this as a breath of fresh air which was significantly different from the government-owned Doordarshan. Having cable connections in the 1990s was seen almost as a mark of prosperity among Indian households in metropolitan cities. Due to better programming and great content, the demand for more channels was hitting the roof.

Cricket, which was and still is a national passion and almost a religion in India saw its exponential growth primarily due to FDIs in media which allowed the Board of Control for Cricket in India (BCCI) to become one of the richest cricket boards in the world. FDI in media allowed private channels Star Network to do bidding for the telecast rights of cricket matches played by the Indian cricket team. This led to numerous bidding competitions between government-owned Doordarshan and various other private players. This was a ‘WIN-WIN’ situation for BCCI as now it had got more bargaining power to deal with various media houses.

While earlier, before 1991, BCCI had to rely on Doordarshan only to get India’s cricket matches being telecasted that too on a very paltry sum paid by Doordarshan which was approved by the Ministry of Information and Broadcasting.  This is a classic example of how monopolization of any sector leads to roadblocks in the growth and development of any sector.

By the end of the 1990s, it was pretty much evident that allowing FDI in India in general and media, in particular, was a blessing in disguise that had arisen due to the Balance of Payments Crisis. A correct decision taken at a correct and crucial time turned India’s fortunes as a country completely. By the turn of the millennium, the Indian people who were exposed to privatised cable TV media started becoming more aspirational and global in its outlook. All this was in no way possible had there been no FDI in media.

The post-millennium FDI scenario (2000- 2010)

The turn of the century saw an even more exponential rise in the size of the Indian media. The Indian M&E industry has evolved appreciably in the decade 2000 to 2010, and the velocity of this evolution is only projected to increase. With mobile phones becoming ever-present, rising Internet penetration and increased use of search engines, consumer patterns have seen a distinct change in India. The government for the first time allowed 26 per cent of Foreign Direct Investment (FDI) into India in June 2002 in news and Current Affairs and 74 per cent in non-news and current affairs . FDI in print media led to the spread of foreign media in India. This further increased the competition and led to the growth of newer forms of media .

Further, in 2005, Foreign Institutional Investment (FII) was also allowed to partake in that share of 26 per cent. Complete 100 per cent FDI was now allowed for non-news publications, periodicals, technical magazines, and journals. Earlier it was 74 per cent.  In the news sector of newspapers, FDI was allowed up to 26 per cent, which for example allowed investment in Hindustan Times and Business Standard by organizations like Henderson Global and Financial Times respectively. Similarly, the vernacular press had a strategic equity investment by Independent News and Media in Dainik Jagran. These, along with the publication of reproductions of foreign journals were also allowed in India. This policy rendered saving foreign journals, except for distribution costs, while at the same time assisting the Indian market audiences more effectively.

More and more news channels started shooting up on the canvas of Indian television. The difference this time from the last decade was that now the news channels had become 24x7 in their coverage. The profits that they had been making or were about to make were huge. This meant more employment and better employment opportunities for many young and aspiring people. The big change came in radio broadcasting in this decade because this was the very decade that saw the start of private FM Radio broadcasting in India since 2001 . This broke the monopoly of All India Radio in the sphere of radio broadcasts. Suddenly, the radio which was previously seen to be a medium for grownups and the older generation that had a fascination and nostalgia for this old medium suddenly became cool and fresh and a medium for the youngsters to listen to the latest rock and pop music.

The rising popularity of private FM radio stations saw a direct impact on the change of hardware technology associated with this medium as well. Suddenly, the transistors were replaced by easy-to-carry pocket radio devices or earphone radio devices. Even new car manufacturers started to make place to fit in radios in the car so that one can listen to the latest music or a bit of news while driving from home to work or vice versa.

Small things like this changed India and the life of its people in a big way. All thanks to the large sums of FDIs being invested in the media. In 2005, 338 FM radio licenses were granted for private investment in 91 big and small towns and cities across the country. The FM radio sector was also opened for foreign investment with an allowance of 20 per cent FDI. The reason why the foreign investors were interested in investing more in the Indian media was that they saw a guaranteed return of manifold increase in what they invested. As of 2005, about Rs 3.2 billion in revenue was generated, showing a growth of 33.3 per cent. This deluge of radio stations opened up the need for quality content and enormous job opportunities.

Suddenly the huge population of India was seen as a huge consumer market ready to be invested upon. By the end of this decade, FDI in media had already gained very deep roots. It was thought that must be an upper limit to how much foreign capital could be infused into the Indian media because it seemed that after a point there was no space available. But, the rise of the internet and social media changed everything.

The 2010s and the Digital Scenario (2010 to 2020)

In India, FDI’s baseline started from less than $1 billion in 1990. A 2012 UNCTAD survey projection suggested India to become one of the most important FDI destinations (second only to China) for transnational corporations during the period 2010–2012.

According to the data, the sectors which attracted higher inflows were many, such as services, telecommunication, construction activities, computer software and hardware. Mauritius, Singapore, US and UK were some of the leading sources of FDI. As per the data released by Grant Thornton India , the total merger and acquisitions (M&A) along with the private equity (PE) deals in the month of August 2015 was valued at US$ 2.6 billion (151 deals), which was 62 per cent more in terms of volume as compared to August 2014.

Like the foreign direct investments changed the TV and radio medium forever in the 90s and 2000’s respectively, the FDI in 2010s changed the landscape of digital media permanently. Unlike print, digital media had no capping of FDI and this helped many new digital media news outlets to establish a base and gain a regular audience. Not only does the FDI in digital media allow the new players to set a base in the media market but it allowed the established media organizations to expand themselves into the digital world.

As per a report published in The Wire, the existing FDI policy has permitted foreign investments in digital media up to 100 per cent. The report further elaborated by stating that Section 5.2 (a) of the DIPP guidelines on foreign investment listed those sectors in which the FDI was limited. In the sectors or activities which were not listed below, FDI has been permitted up to 100 per cent on the automatic route, subject to applicable laws/regulations; security and other conditionalities, the report concluded .

In 2019, the government approved 26 per cent FDI in digital media which can be seen as capping the earlier 100 per cent FDI to almost one-fourth its previous size . Many in the media industry, especially in the digital news media, said this decision by the government is restrictive in its nature. Due to this policy change, many digital news websites that run on a very high component of FDI are finding themselves in a losing position. But the government’s position on this matter is that by allowing both print and digital media 26 per cent FDI, the government has set a level playing field for all the players within the media business.

Due to the exponential rise of digital media, much of the audience which was earlier a dedicated audience of print publications has now shifted to digital news platforms. The reason is, that the low-cost mobile data packages have severely changed the nature of news consumption of readers. Print organizations have diversified into digital also and now have a platform-agnostic approach.

FDI in Indian media: The present state

Presently, India’s image is one of the most liberal investment regimes with a favourable FDI environment. The media and entertainment sectors have immensely benefitted from this liberal regime. As a result, numerous segments of the industry are allowing foreign investment presently. The eligibility conditions within the media sector differ. Direct-To-Home (DTH) Service provide for the entire foreign equity holding, which includes FDI/ NRI/ OCB/ FII, in the applicant company not to exceed 49 per cent, and within the foreign equity, the FDI component shouldn’t exceed the 20 per cent limit. The applicant company is mandatorily required to have an Indian management control with the majority of representatives on the board. Also, it is essential that the chief executive of the company needs to be a resident of India.

The government introduced many methods in the Union Budget to expand the profit limits of the Media and Entertainment Sector. The Government of India has targeted to liberalise the FDI regime and therefore FDI up to 26 per cent has been permitted under the government approval route for uploading and streaming of news through online media. The FDI limits for the telecom and M&E sector have been outlined as under. The FDI in all sectors can be seen in the table below.

Table 1: Current FDI Policy in Media and Entertainment SECTOR in India Liberalizing the FDI Regime

Source: Foreign Exchange Management (Non-debt Instruments) Rules, 2019 dated 17th October, 2019 read with Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 dated 5th December 2019, issued by the Ministry of Finance (Department of Economic Affairs) [i> _; FICCI EY Annual Report, E__ra of Consumer ART,_ 2019, (P 22-23)

The government has now focused on liberalizing the FDI regime for both the telecom and media and entertainment sectors in order to attract investment for the purpose of infrastructure development. FDI limits for the telecom sector were eased in 2013 . For the media and entertainment sector, the FDI limits were eased in the year 2015 and subsequently in 2016 as well. In the month of June 2016, FDI limits in various sectors like teleports, DTH, cable networks, mobile TV, head-in-the sky broadcasting service and cable networks were completely uplifted, which then allowed 100 per cent FDI through the automatic route. There were no provisions mentioned in relation to digital media in the FDI policy until the year 2019, but in December 2019, FDI up to 26 per cent was given permission under the government approval route for uploading/streaming news and current affairs, through digital media.

According to the FICCI report, 2020, FDI inflows in both sectors display volatility. Post-liberalisation, a significant upward movement FDI norms in the information and broadcasting sector has been witnessed. Graphs 1 and 2, indicate the trends in FDI inflows into the information and broadcasting sector and the telecommunications sector in this decade. The information and broadcasting sector’s share in the total FDI inflows in India grew at 3.5 per cent in 2016-17 but slumped to 2.9 per cent in the calendar year 2018-19. In terms of pure numbers, FDI flows in the media and entertainment sector reached $1.3 billion in 2018-19 as compared to the previous year i.e $0.6 billion.

FDI inflows into the telecommunication sector crashed to $2.7 billion in 2018-19 as opposed to the previous year which clocked at $6.2 billion. Between April-September it significantly increased to $4.3 billion. However, the Supreme Court’s order to pay the adjusted gross revenue dues which amount to approximately $20.7 billion to the Department of Telecommunications, has stressed the firms in the telecom sector, according to the FICCI EY Report 2020. 

Amendments to the existing FDI policy

There are several amendments that the GOI has made to the existing FDI policy. This has been done to avert the considerable threat of an ‘opportunistic’ Chinese takeover of Indian firms. Investments from the entities of the neighbouring countries, especially those that share borders with India will now require a clearance from the Centre.

Now, even a non-resident entity is free to invest in India, subject to the FDI Policy. The only exception is in those sectors/activities which are mentioned as prohibited in the new FDI policy. But, any entity of India’s bordering nation-states or a citizen of any such state, can invest only under the government route. These amendments also highlight the fact that this new FDI policy blocks the indirect acquisition of investments by entities directly operating out from China. As a result, change in ownership of the investment will also have to be cleared by the Central government.

 Conclusion

GOI’s policy frameworks and business environment proved quite beneficial in ensuring that foreign capital keeps flowing into India. FDI in the Indian media looks like a necessity as things stand at present. Going towards the path of total self-reliance looks like an impossible task, especially for the Indian media. But India’s stand that self-reliance does not mean that it would look inwards or go on the path of becoming an isolationist country comes as a much-needed promise. The clear picture is yet to be unveiled in front of the public by the political leadership. History has shown us that FDI in the Indian economy and media in particular has proven to be extremely fruitful that has allowed India to become the country that it is today. The fact of the matter remains that India of pre-1991 stands nowhere near the India of 2020s, despite all its economic shortcomings.

The writer is a Doctoral Fellow at School of International Studies, Jawaharlal Nehru University, New Delhi. The views expressed are personal.

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