The Cabinet nod to the relief package for the telecom sector will surely help the telecom companies, especially Vodafone Idea which was on the verge of closure. The package comprises a slew of measures of which the most important is a four-year moratorium on adjusted gross revenue (AGR) dues. Further, AGR has been rationalized, with non-telecom revenue to be excluded on prospective basis from the definition of AGR. The range of reforms seems impressive but these need to be complemented with something more, as we shall see.
AGR, a fee-sharing mechanism between the government and telecom companies, has long been a contentious issue. The government claimed that AGR must include all revenues from both telecom and non-telecom services, while the companies maintained that AGR should pertain to only core services. The telcos lost the battle in the Supreme Court. This burdened Vodafone Idea with dues worth nearly Rs 59,000 crore and Bharti Airtel with about Rs 44,000 crore.
Six weeks ago, Kumar Mangalam Birla resigned from Vodafone Idea as non-executive director and non-executive chairman. Birla’s partner in the venture, Vodafone Group Plc, also refused to infuse any equity in its joint venture in India. As a consequence, the company faced insolvency and the telecom sector the prospect of duopoly.
Against this backdrop, the moratorium comes as a breath of new life. The moratorium or deferment of annual payments of dues arising out of the AGR is for up to four years. This is, however, aimed at protecting the net present value (NPV) of the due amounts. This measure is “revenue neutral,” Telecom Minister Ashwini Vaishnaw said at the press briefing after the Cabinet meeting.
Telecom companies availing of this profit have to pay interest for the period the payment is deferred. They will also have the option to convert the interest payment arising due to the deferment into equity, which will be handed over to the government.
Quite expectedly, Vodafone Idea Limited promoters welcomed the moratorium. “The path-breaking reforms announced by the government today will go a long way in unshackling the telecom sector. These reforms demonstrate the government’s firm commitment to ensuring healthy growth of the industry,” Birla said in a joint statement.
In a press release, the government listed the “structural reforms”. These included, apart from the one on AGR, rationalization of bank guarantees (BGs). BG requirements have been hugely reduced against the license fee and other similar levies. Earlier, multiple bank guarantees were required in different licenced service areas or LSAs. Now one BG will be enough.
Further, for delayed payments of license fee and spectrum usage charge, telcos will have to pay an interest rate 2 per cent lower than they pay now. Penalty and interest on penalty have been removed.
“For auctions held henceforth, no BGs will be required to secure installment payments. Industry has matured and the past practice of BG is no longer required,” the press release said.
Also, for future auctions, the tenure of spectrum has been increased from 20 to 30 years. “Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.”
No spectrum usage charge will be levied on the spectrum acquired in future spectrum auctions. Spectrum sharing will be encouraged. To encourage investment, 100 per cent foreign direct investment under automatic route has been permitted in the telecom sector. The Cabinet has also cleared measures to improve the ease of doing business in the sector.
The moratorium and other decisions will certainly help the telecom sector which, once booming, is majorly stressed. If the raft of measures works, it will also help banks and the public exchequer.
Vodafone Idea owes over Rs 23,000 crore to banks. It also has to pay Rs 94,000 crore to the government on spectrum charges. Then there are AGR dues. If the company folds, banks and the government would just get a fraction of sums due to them. Vaishnaw mentioned this issue at the press conference.
The government expects its decision “to protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, encourage investment and reduce regulatory burden on” telecom companies. The expectation is not unrealistic, but it is contingent upon an attitudinal change on the part of the key economic ministers.
Many of them not just lack empathy for businesspersons; often antipathy towards the captains of industry is on display. An important minister threatened to “bulldoze” the auto sector; another one berated them for being focused on profits. Such irascibility is symptomatic of our politicians’ disdain for wealth creators. This disdain can never let the ministers address the genuine concerns of the business class in a satisfactory manner.
The result is that the country is not getting enough investment. Those who have money don’t want to put it in India; they are leaving India instead—tens of thousands of them. Sector after sector—telecom, auto, civil aviation—is getting stressed.
Then there is also the issue of abrupt policy changes, often without taking industry into confidence. Worse, often whimsical ideas are taken seriously, for these are garnished with such buzzwords and phrases as ‘reimagining’ and ‘thinking outside the box.’
It would be better if government functionaries treated India Inc with the respect it deserves and focused on the boring, mundane matters instead of flirting with fancy ideas. This will help re-energize the ailing sectors like telecom.
The author is a freelance journalist. The views expressed in this article are those of the author and do not represent the stand of this publication.
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