Vodafone Group Plc (VOD)’s $1.6 billion plan to buy out the local partners in its Indian unit won government approval, six months after the South Asian nation ended limits on foreign ownership in the sector.

India’s cabinet cleared the company to pay 101.4 billion rupees to billionaire Ajay Piramal’s Piramal Enterprises Ltd. and Analjit Singh, chairman of the Indian unit, for the 15.5 percent stake it doesn’t yet control, Information Minister Manish Tewari said in New Delhi yesterday. The transaction values the business at 654.2 billion rupees ($10.5 billion).

Chief Executive Officer Vittorio Colao is counting on growth in Asia and Africa to offset price wars in Europe. India, which accounts for the company’s biggest customer base and minutes of use, provides about 10 percent of Vodafone’s revenue.

“With the population the size of India and the GDP growth and the data needed, it’s not a hard estimate to think that India will become very important for Vodafone,” Colao said yesterday, before the decision was announced, on a conference call following the release of the company’s quarterly results.

Vodafone will consider acquisitions in India when there is more clarity on the telecommunications operating environment, he said. The Newbury, England-based company is the second-largest wireless carrier in the world by subscribers. China Mobile is the biggest.

“India will become a top two” market for Vodafone, Colao said, without specifying by what metric. “I didn’t say in the short term.”
Data Use Doubles

India, the world’s fastest growing smartphone market, has become a primary destination for Vodafone’s 7 billion-pound ($11.3 billion) “Project Spring” campaign, a network upgrade project funded by the company’s $130 billion sale of its stake in Verizon Wireless in the U.S.

Data use at the Indian unit more than doubled in the quarter ended Dec. 31 as more people used their phones to access the Web. Indian service revenue, excluding the impact of mergers and currency swings, rose 13 percent to 937 million pounds, the company said today.

Besides buying out its local partners, Vodafone is among eight companies bidding on Indian airwaves this week, including the renewal of permits slated to lapse in November in India’s two largest cities.

India has a population of about 1.2 billion people. The Reserve Bank of India forecasts the economy will expand a little below 5 percent in the fiscal year ending March 31.
Additional Investment

Once Vodafone has full control of the Indian unit, it will consider investing additional cash through share subscriptions, it’s said.

The Indian government removed a 74 percent cap on foreign stakes in the mobile industry in July 2013 to attract capital amid a growing current-account deficit and tumbling rupee.

The company’s proposal to purchase the stake was referred to Prime Minister Manmohan Singh’s cabinet, as it involved an investment of more than 12 billion rupees, the Foreign Investment Promotion Board of the trade ministry said in a Jan. 13 statement.

Until now, Vodafone has held a 64.4 percent stake in the unit directly and 20.1 percent through subsidiaries.

Vodafone rose 3.7 percent to 223.9 pence in London trading yesterday, the biggest gain in more than five months. The stock has gained 39 percent in the past year, giving the company a market value of about 108.5 billion pounds.

The company yesterday reported a smaller drop in service revenue than analysts had estimated on growth in customers outside of Europe.