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With govt telecom relief package, Vodafone Idea gets AGR breather but balance sheet pinch to continue

The telecoms sector's relief package is anticipated to benefit not just all wireless providers, but particularly Vodafone Idea, which is said to be closing. Vodafone Idea, India's third-largest operator by user base, is reported to be on the verge of bankruptcy due to rising debt and operational costs. 

The Union Cabinet, led by Prime Minister Narendra Modi, approved a relief package for the troubled telecom sector on Wednesday, including a four-year freeze on telecom businesses paying statutory dues and permitting 100 percent foreign investment through the automatic route.

This comes a week after the Centre opted out of a telecom industry rescue plan last Wednesday when unveiling the PLI scheme for the textile sector. The Centre appears to have spent little time in announcing a comprehensive financial assistance package aimed at rescuing cash-strapped telecom giants.

The telecoms sector’s relief package is anticipated to benefit not just all wireless providers, but particularly Vodafone Idea, which is said to be closing. Vodafone Idea, India’s third-largest operator by user base, is reported to be on the verge of bankruptcy due to rising debt and operational costs. Vodafone Idea has paid the government Rs 78.54 billion ($1.07 billion) in telecoms dues thus far, but still owes around Rs 500 billion, regulatory papers reveal.

While updating the media on the Cabinet’s choices, telecom minister Ashwini Vaishnav stated that the Cabinet approved nine structural reforms for the telecom sector. “The disputed definition of Adjusted Gross Revenue (AGR) has also been revised to remove non-telecom revenue. The telecom corporations challenged the AGR definition and have been saddled with unpaid AGR dues,” Vaishnav explained.

AGR is a term that refers to revenues that are regarded for the purpose of paying statutory dues. The minister stated that the Cabinet had approved 100 percent FDI (Foreign Direct Investment) in telecom via the automated procedure. “The action will contribute to the sector’s resilience and attract new investment. The majority of auctions will take place in the latter quarter of the fiscal year,” communications minister Ashwini Vaishnaw stated.

Additionally, a four-year moratorium on outstanding dues, AGR, and spectrum dues was allowed. These initiatives are intended to alleviate some of the industry’s cash flow concerns.

Additionally, the Cabinet approved a plan to rationalise spectrum user payments by using annual compounding rates rather than monthly compounding rates. Additionally, there will be a schedule for the spectrum auction, which will typically occur in the fourth quarter of the fiscal year.

While the government has also let telecom companies transfer spectrum “anywhere they judge beneficial,” the 1953 customs notification has been repealed. The measure will make it easier for telecom companies to import equipment.

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