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Government allows 100% FDI for telecom sector, approves 4-year moratorium on payment dues by telcos

Cabinet rationalises AGR definition, excludes non-telecom revenue of telcos from payment of statutory levies. The moratorium will provide some relief to Vodafone and the overall ailing telecom sector, reports said.

 In a big boost to the cash-strapped telecom sector, the Centre has announced major reforms that are likely to usher the telecom industry into a new era, push investment and reduce the debt burden.

The Union Cabinet on Wednesday announced 100% foreign direct investment (FDI) in the telecom sector through the automatic route as part of its comprehensive package for the telecom sector. Till date, up to 49% was allowed through the automatic route and anything thereafter had to necessarily go through the government route.

“The reforms are deep and broad. They are structural. These reforms will bring in change today, tomorrow and in the future. I do not like to put a number on the package as it is revenue-neutral for the government,” the minister said. The moratorium will not impact the government’s revenue, union Minister Ashwini Vaishnaw said.

“PM Modi took a bold decision over AGR (adjusted gross revenue) today. A decision has been taken to rationalise the definition of AGR. All non-telecom revenue will be taken out of AGR. There was a regime of heavy interest, penalty & interest on penalty on payment of license fees, spectrum user charges and all kinds of charges. It has been rationalised today. Annual compounding (of interest) will be done instead of monthly compounding. A reasonable interest rate of MCLR + 2% interest rate has been offered and the penalty has been completely scrapped. This will pave way for large-scale investments in the telecom sector. Investment means employment – more the investment, more the employment,” Vaishnaw added at a press briefing in New Delhi.

These measures are expected to ease the cash flow issues being faced by some players in the industry. Peeyush Vaish, Partner & Telecom Sector Leader, Deloitte India, said: “The savings in the cash flows will boost the telecom sector and pave the way for 5G auctions in India.”

“So, say Vodafone Idea (Vi) opts for the moratorium. For spectrum they will have to furnish no bank guarantees for the next 2 years and eleven months. So that means, out of Rs 23,000 crore, their bank guarantees are worth Rs 15,000 crore for spectrum. This means it will come down to roughly Rs 200-300 crore, which is for the 2021 spectrum auctions,” a senior government official said.

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