India’s telecom industry is going through an unprecedented crisis. Vodafone Idea and Bharti Airtel, two of India’s largest telcos, are in deep financial trouble. The companies reported losses of Rs 50,922 crore and Rs 22,830 crore respectively for the three months ended September, 2019. These huge losses were the result of a Supreme Court ruling that forced these companies to pay disputed amounts due to the government. Last month, the Supreme Court upheld the government’s plea that telcos are liable to pay tax on adjusted gross revenues (AGR) apart from the spectrum charges and licence fees. The ruling meant that the ailing telecom operators have to pay the government Rs 92,000 crore. Without a government interference in their favour, the very existence of the top telcos will be threatened. Vodafone group CEO has warned that the company may be left with no option but to exit from India.
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A committee led by cabinet secretary Rajeev Gauba is currently contemplating ways to bail out the bleeding telcos. It is clear that the government has to bring in reforms to revive the sector. Apart from charging exorbitant spectrum fees upfront, it collects a revenue share from the operators. Nearly 30% of the revenues of the telecom service providers go to the government in the form of fees, taxes and levies, which is unjustifiable by any standards. There is also an urgent need to settle the dispute over interconnect usage charges. The government must stake steps to ensure that the industry is nursed back to health as it is crucial for the revival of India’s growth prospects.
India needs to provide a conducive policy environment for its businesses to thrive. The telecom sector, which was the toast of Indian industry not so ling ago has plunged into the depths of despair. This is not a great advertisement for India, which is struggling to attract foreign investors to boost its chances of becoming a global manufacturing hub. It needs to assure prospective investors that the country offers a congenial atmosphere for businesses to function without hurdles. It also needs to ensure that the policy and regulatory actions are predictable and fair.
Anil Nair is Founder and Editor, Policy Circle.