The Union government is likely to increase the foreign direct investment (FDI) cap in the telecom sector to 74 per cent from 49 per cent in the Budget 2003, industry officials said.
Finance Minister Jaswant Singh could announce a cut in customs duties on telecom equipment and mobile handsets in the Budget, official added.
"We're expecting the FDI cap will be increased to 74 per cent as that will help attract more investment in the sector," joint managing director at Bharti Tele-Ventures Ltd, Akhil Gupta told Reuters.
New Delhi-based Bharti is 16 per cent owned by Singapore Telecommunications Ltd.
The nascent industry, billed as one of the fastest growing telecom markets globally, has attracted many global players because of its growth prospects and a low tele-density of 4.5 per cent compared with a global average of 15 per cent.
"You need that relaxation in the FDI limit to attract more investments in the sector, especially when secondary markets are lacklustre and their appetite for telecom issues is also low," said telecom analyst at Enam Securities, Ramchandra Hegde.
Telecom firms have urged the government to remove customs duties on telecom equipment such as base stations and switches from five per cent to help reduce infrastructure costs.
"We're expecting the basic import duty to be brought down to zero so that equipment becomes cheaper," said Association of Basic Telecom Operators secretary general, SC Khanna.
"This will help reduce the cost of services and boost tele-density."
In addition to the five per cent customs duty, phone companies also shell out a countervailing duty of 16 per cent on equipment.
The association for handset sellers, which is fighting to shake off the smuggled market's grip on new buyers, is hoping the basic import duty on mobiles will be reduced to between zero and five per cent from 10 per cent.
"This will spur the legal market and the entry barrier for the industry will go down," said Indian Cellular Association president, Pankaj Mohindroo.