Cabinet approves 4-year moratorium on payment of all govt dues by telcos

In big bang reforms, the Union Cabinet on Wednesday approved a relief package for the telecom sector that includes a four-year moratorium on payment of statutory dues by telecom companies as well as allowing 100% foreign investment through the automatic route.

Briefing reporters on the decisions taken by the Cabinet, Telecom Minister Ashwini Vaishnaw said nine structural reforms for the telecom sector were approved.

The definition of AGR, which had been a major reason for the stress in the sector, has been rationalised by excluding non-telecom revenue of telecom companies.

AGR refers to revenues that are considered for payment of statutory dues.

“PM Modi took a bold decision over AGR (adjusted gross revenue) today. A decision has been taken to rationalise the definition of AGR. All non-telecom revenue will be taken out of AGR. There was a regime of heavy interest, penalty & interest on penalty on payment of license fees, spectrum user charges and all kinds of charges. It has been rationalised today. Annual compounding (of interest) will be done instead of monthly compounding. A reasonable interest rate of MCLR + 2% interest rate has been offered and the penalty has been completely scrapped. This will pave way for large-scale investments in the telecom sector. Investment means employment – more the investment, more the employment,” said Vaishnaw at a press briefing in New Delhi.

“For future auctions, duration of spectrum will be 30 years instead of 20 years. Also if someone takes spectrum & business conditions/technology changes then after a lock-in period of 10 years it can be surrendered by paying spectrum charge. Spectrum sharing is also being completely allowed, it has been made completely free,” added Vaishnaw.

The minister said that 100 per cent FDI (Foreign Direct Investment) in telecom via the automatic route was approved by the Cabinet.

Among the measures approved were a four-year moratorium on unpaid dues, AGR and spectrum dues, he said.

These measures are expected to ease the cash flow issues being faced by some players in the industry and provide relief to companies such as that have to pay thousands of crores of rupees in unprovisioned past statutory dues.

“The relief package announced by the Government is a welcome step towards strengthening the industry and ensuring survival of players to maintain healthy competition for the benefit of the customers. The removal of non-telecom revenues from the definition of AGR and the removal of penalty is a much needed change that has been brought in. This extra burden has hurt the telecom industry in the past and will now pave the way for telecom players to make higher capital investments,” said Sameer Chugh, Partner, Cyril Amarchand Mangaldas.

The relief package comes six weeks after billionaire Kumar Mangalam Birla resigned as chairman of beleaguered Ltd (VIL) on August 4.

VIL’s August 4 intimation about the top-level changes had come on a day stock exchanges seeking clarification from the company over the widely reported June 7 letter of Birla to the Cabinet Secretary offering his stake in to the government or any company approved by the government for free.

VIL, which was created from the merger of British telecom giant Vodafone’s India unit and Birla’s Idea Cellular Ltd, has to pay about Rs 50,399.63 crore in statutory dues dating back over past many years.

The package, which initially was widely expected to be taken up by the Cabinet last week, will offer a breather to the three private player industry, at a time when VIL is confronting existential crisis.

Vodafone Idea, in its annual report, has flagged the industry’s “unsustainable financial duress” and hoped that the government would provide the necessary support to address “all structural issues” faced by the sector.

The total gross debt (excluding lease liabilities and including interest accrued but not due) as of June 30, 2021 of VIL stood at Rs 1,91,590 crore, comprising of deferred spectrum payment obligations of Rs 1,06,010 crore and adjusted gross revenue (AGR) liability of Rs 62,180 crore that are due to the government.

Industry analysts too have been sounding an alarm over the risks of the Indian telecom market turning into a duopoly.

Apex association COAI recently made a strong pitch for cut in levies, doubling tenure of auctioned radiowave holdings, along with 7-10 year moratorium for spectrum payments, to address viability concerns of the sector.

Last month, Sunil Mittal, Chairman of India’s second largest telecom company Bharti Airtel, had made a passionate pitch for hike in tariffs and a cut in government levies to save the industry.

Mittal had said while 35 per cent of industry’s revenue goes to the government in taxes and levies, telcos are loaded with an extraordinary debt of AGR (Adjusted Gross Revenue) dues and spectrum payments.

Levies are far too high in the telecom sector, Mittal had said adding that “levies and load on industry needs to be brought down” for India to truly realise its digital vision.

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