Cabinet approves major Reforms in Telecom Sector

Synopsis: Govt has introduced a range of reforms for improving the ailing telecom sector. These reforms were much needed in light of the recent Vodafone Idea crisis resulting in a likely duopoly of Airtel and Jio in India’s telecom space.

Introduction

The Union Cabinet approved a number of structural and process reforms to rescue the ailing telecom sector. The package is also expected to boost 4G proliferation, infuse liquidity and create an enabling environment for investment in 5G networks.

What are the major reforms that have been announced?

Nine structural reforms and Five procedural reforms plus relief measures for the Telecom Service Providers have been announced.

Structural reforms:-

i). Rationalization of Adjusted Gross Revenue:  Non-telecom revenue will be excluded on prospective basis from the definition of AGR. To protect government revenues, companies availing of the moratorium will have to pay interest. This would be at the rate of marginal cost of funds based lending rate (MCLR) plus 2%.

ii). For auctions held henceforth, no Bank Guarantees (BGs) will be required to secure installment payments. Industry has matured and the past practice of BG is no longer required.

iii). To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply. Currently, 100% FDI is allowed in the sector, but only 49% was on the automatic route, and any investment above that limit required government approval.

Procedural Reforms:-

i). Ease of doing business promoted: cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.

ii). Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.

Addressing Liquidity requirements of Telecom Service Providers:-

i). 4-year Moratorium/Deferment of dues arising out of the AGR judgement and the dues arising out of the spectrum purchased in past auctions.

ii). Option to the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.

iii). At the end of the moratorium period, the government will provide an option to the telecom player to pay the interest amount arising out of the deferment of payment by way of equity, and at the option of the government, to convert the entire due into equity.

Source: This post is based on the following articles –

“Cabinet approves major Reforms in Telecom Sector“ published in PIB on 15th Sep 2021.

“Centre rolls out lifeline for debt-ridden telecom sector & A relief package to lift India’s telecom gloom” published in Livemint on 16th Sep 2021.

“4-year moratorium on AGR dues will give relief for now to telcos, but may not stop balance sheet bleed“ published in Indian Express on 16th Sep 2021.

“Lifeline for telcos as govt. offers four-year moratorium on dues“ published in The Hindu on 16th Sep 21.