If the government does not accept the recommendations of a panel of officials to grant relief to the telecom sector to buttress a Rs 1.35-lakh crore blow to top players following a Supreme Court order, the telecom sector may end up with a monopoly player in Mukesh Ambani's Reliance Jio, reports say.
The telecom sector has been struggling from a Rs 1.35-lakh crore hit following a Supreme Court order on adjusted gross revenue (AGR). A panel of officials have been thinking of granting some respite by deferring the payments over a 20-year period, reports say. Telecom firms placed second and third in market share Vodafone Idea and Bharti Airtel respectively are bearing the brunt of the court order that rejected their contention that the government levies should be based on net revenue from core operations. The top player Reliance Jio owned by Reliance Industries Limited (RIL) will only take a mild hit, having entered the market only in 2016.
Moratorium on dues
The panel may also recommend a moratorium on recovering the dues on AGR, according to a report on the Economic Times website. It may also suggest a shift to net present value for computation of AGR, according to the report.
The panel has representation from key stakeholder ministries and departments.
The committee that met last week for the first time is also in favour of reducing the total incidence of taxation to help the troubled sector and separately reach out to the regulator to consider some floor on tariffs to help with viability. Industry observers believe that a longer period granted to meet the penalty obligations would help the industry recover even though some circles are suggesting part waiver of the dues. "All options are on the table," the report quotes an unidentified official aware of the deliberations as saying. "The government is keen to ensure that the telecom sector remains competitive."
There was a realisation that something would need to be done if the government wanted a competitive telecom sector, another official who attended the meeting of the panel headed by cabinet secretary Rajiv Gauba. The panel has representation from key stakeholder ministries and departments.
Definition of AGR
The telecom sector, already weakened by a fratricidal price war and high bandwidth charges, took a mighty blow from an October 26 Supreme Court order that upheld the telecom department's stance on including revenues from non-core items in the definition of AGR while calculating government levies. The decision means telecom players like Vodafone and Airtel will have to bear the burden of Rs 1.35 lakh crore.
Airtel and Vodafone will have to pay about Rs 80,000 crore, under the order, making their operations unviable. Their going belly up would mean the government revenues will also be hit. The court order set a deadline three months away for the telcos to meet their obligations. Under the formula being discussed, payments stretching into the future are discounted at an agreed rate – the required rate of return the government wants on the outstanding – so that the sum of all such discounted flows is equal to the total AGR liability of the telecom companies, the report says. This way, while the government would get its dues without any loss, though over many years, the telcos would get a respite from immediate payments.