Impact of Foreign Direct Investment on Financial Performance of Indian Telecom Companies: An Empirical Study
The Indian Government has taken major steps towards privatization and liberalization of the telecommunication industry since 1991. As a result, this industry has attracted massive FDI inflows and made tremendous progress by adopting advanced technology and allowing the participation of private telecom operators. There is a dire need to assess the contribution of foreign investment in the performance of Indian telecom operators to ensure that the new regime of the open market being adopted is better than the earlier regulatory and legislative framework. The present study has applied the ratio analysis technique to determine the impact of FDI on the financial performance of Indian telecommunication companies for the period 2004-2018. Three profitability ratios viz., Net Profit Margin, Return on Assets and Return on Equity have been used to compare the earning capacity of six major telecommunication companies namely, Bharti Airtel, Idea Cellular, Reliance Communications, Tata Communications, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). The empirical findings reveal that private telecom operators with FDI are generating more profits by efficiently utilizing their assets than the private telecom operators and public sector telecom operators receiving no FDI. The financial condition of both private telecom companies without any FDI and state-owned companies without FDI is somewhat the same. Hence FDI has made a significant contribution in improving the financial performance of private Indian telecommunication companies.