Though belated, the big-ticket relief package unveiled by the NDA government will, hopefully, provide a lifeline for the beleaguered telecom sector. Allowing 100% foreign direct investment (FDI) under the automatic route and a four-year moratorium on payment of dues by telecom companies form the core of the package. For a sector that has been in the grip of an existential crisis, deepened further by excessive regulation and unreasonable tax demands, this was much-awaited succour. The Union Cabinet has also approved several structural and process reforms, including rationalisation of the contentious definition of adjusted gross revenues (AGR) by excluding non-telecom revenue of telecom companies. This is a welcome development as it reflects a willingness to shed policy inflexibility and to change with the times. A moratorium on AGR-related dues will help the cash-strapped telecom companies to stay afloat and clear dues over a longer period. The exclusion of non-telecom revenue, rationalisation of spectrum charges and annual compounding of interest rates will also give it some breathing space. The enhancement of the life of the spectrum by 10 years and the removal of a financial constraint to spectrum sharing offer a lifeline to the ailing sector. The latest set of reforms, which comes close on the heels of exorcising the ghost of the retrospective taxation, is expected to provide relief to the ailing telecom sector as a whole and specifically to Vodafone Idea as the company was on the verge of going bankrupt.
Vodafone Idea, reeling under a staggering debt of Rs 1.8 lakh crore of which Rs 1.5 lakh crore was payable to the government, symbolises the crisis that the telecom sector finds itself in. The long-standing dispute with the Department of Telecommunications (DoT) on the definition of AGRs has been a major stumbling block for the growth of the industry. The Supreme Court’s judgement last year upholding the DoT’s position and asking the telecom companies to cough up nearly Rs 1.50 lakh crore in overdue levies and interest came as a severe blow to an already crisis-ridden sector. Later, the apex court gave them a ten-year timeline to clear AGR dues, but it offered hardly any solace to the sector that has been rapidly collapsing under the weight of piling debts. In this grim backdrop, the Centre’s latest announcements signal a return to an investor-friendly climate or at the least, it can be seen as a strong attempt to do so. The government should now carry forward the spirit of this relief package into its future telecom policy. Competition is extremely essential for the telecom industry to offer choices to customers. The purpose of reforms must be to ensure healthy competition and attract new players.