Focus: GS-III Indian Economy
Why in news?
The Supreme Court has questioned the sale of spectrum by bankrupt telcos (Telecommunication Companies) Reliance Communications and Aircel, and sought to know from the government how it plans to recover Rs. 43,000 crores of AGR dues from these companies if all their assets were sold off in the interim. (These AGR dues are over and above other statutory dues.)
- The observations came after the Supreme Court bench pointed out that though the government had filed an appeal against concurrent decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) — allowing some of the ailing telcos to monetise all assets, including spectrum, to pay off creditors — a hearing on the issue was awaited.
- Under the Insolvency & Bankruptcy Code (IBC), financial creditors such as banks get precedence over operational creditors during recovery of dues.
- As an operational creditor, the government will not be able to recover AGR dues in the resolution proceedings.
- No contingency provisions have been made either by the companies or the committee of creditors (of the bankrupt telcos) for AGR dues.
The AGR Issue – Timeline
- The telecom sector was liberalised under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee.
- To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.
- Under this, mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC).
- License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the telecom companies.
The Contention on Definition of AGR – 14 years on
- In 2005, Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
- However, DoT argued that AGR includes all revenues from both telecom and non-telecom services.
- The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on the sale of any investment or fixed assets.
- In 2015, the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) stayed the case in favour of telecom companies and held that AGR includes all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income.
- However, setting aside the TDSAT’s order, in 2019, the Supreme Court of India upheld the Department of Telecom (DoT)’s interpretation of Adjusted Gross revenue (AGR), due to which telecom service providers had to pay an estimated Rs. 1.4 lakh crore to the government.
Impact of the Current Definition
Impact on Telecom Sector
- 10 of the 15 telecos that existed in 2005 have either closed operations or are undergoing insolvency proceedings in the last 14 years.
- AGR due will seriously hurt financial stability of telecom companies that are doing business in the Indian market.
- Telecom equipment suppliers may also go down as their dues will not be paid.
Impact on Banking Sector and Economy
- Banks will face the consequences of the dues as companies will be going bankrupt (non-performing assets will rise).
- The collapse of the telecom sector may increase unemployment, and reduce investment, adding to our economic and social problems.
Effect on consumers
- The failure of a few large players could lead to one or two players emerging near-monopolies.
- This leaves the Indian consumer vulnerable to high pricing, sub-standard products and lack of options.
Government will be the only winner:
- If companies are ready to pay AGR dues, it will lead to a higher contribution to the public exchequer – Meaning the Government revenue will get a huge boost and help bridge gap in the fiscal deficit and help the government finance the recovery of the economy in the current pandemic affected situation. (Note: This scenario is only possible if the companies are ready to pay the dues)
- If the AGR Dues can be broken in instalments to be paid over the period, then the telecos would be in a better position to pay the dues back, rather than filing for bankruptcy.
- Since the Supreme Court recognises that there was no willful defiance of the law that is an essential ingredient to attract the levy of penalty, the government can waive off the penalty or at least interest on penalty to reduce the burden on telecos.
- Alternative dispute resolution (ADR) mechanisms (a variety of processes that help parties resolve disputes without a trial) van be explored by the government.
- Facilitating shared infrastructure by the government with policies and legislation will be able to help out the telecos.
-Source: Economic Times