A series of unfortunate events threaten to derail what was once a sunrise sector. On Friday, the Supreme Court rejected the plea filed by telecom operators seeking a new schedule for payments related to the adjusted gross revenue (AGR) issue. The Court had previously weighed in on the side of the government’s unreasonable demand and rejected a petition that sought a review of its earlier order asking telcos to pay around Rs 1.47 lakh crore to the government — regardless of its implications for the sector or the broader economy. Though the government had insisted that no coercive action would be taken against telcos till the issue was resolved by the Court, it did not think it reasonable to reconsider its problematic position that revenues from non-telecom activities be part of AGR calculations. As there was ambiguity over what constitutes AGR — this is also one of the reasons why bundling has not really taken off in India — the least it could have done was to recommend a waiver of all penalties and interest. Yet, despite knowing that telcos are struggling, rather than reconsider the licence regime, and the statutory levies, the government now hopes to extract a staggering Rs 1.33 lakh crore from the sector in 2020-21.
The reluctance to provide relief to the two major incumbents will have grave implications for the structure of the telecom sector. Vodafone Idea has once again reiterated its doubts over its ability to continue as a going concern. Closure of the firm could lead to a duopoly-like situation with one dominant player setting the rules of the game. An enfeebled competition will lead to a loss in terms of consumer welfare. The pain, however, does not stop with the telecom sector. With the Supreme Court unequivocally stating its position, even non-telcos holding telecom licences will face the heat. PSUs like GAIL (which reportedly owes Rs 1.72 lakh crore), Oil India (Rs 48,000 crore), Power Grid Corporation (Rs 22,168 crore) will now be asked to pay up. The implications for banks, employees and the broader economy are ominous. But beyond the destruction of wealth, the message to investors from this ordeal — the lack of policy stability and predictability — is hard to ignore.
A cash-strapped Centre may welcome the Court’s verdict. But considering the long-term consequences, it must step in. A possible first step is to subsume this matter under the newly announced “Vivad Se Vishwas” scheme, wherein taxpayers are required to pay only the amount of disputed taxes and will get a waiver of interest and penalty. The Centre must also reconsider its approach to the sector, beginning with an overhaul of the current licencing regime.
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