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Centre approves major relief package for telecom sector, 100% FDI allowed

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In a major relief for the stressed telecom sector, the Union Cabinet on Wednesday approved a relief package which comprises several relaxations for telecom companies, including allowing 100 per cent FDI and rationalising the definition of Adjusted Gross Revenue (AGR) by excluding non-telecom revenue of telcos from payment of statutory levies.

The relief package is a major breather for Vodafone Idea, which owes a massive sum in government dues and is on the verge of bankruptcy. It will also help out Bharti Airtel, which is facing stiff competition from Mukesh Ambani’s Jio.

As part of the package, telecom companies will also get an opportunity to avail a four-year moratorium on government dues. The relief package could resolve the financial crunch being faced by telecom companies due to which they are unable to clear the spectrum fees payable to the government.

Union minister Ashwini Vaishnaw said, “In the telecom sector, nine structural reforms and five process reforms have been approved by the cabinet. These reforms will change the framework of the entire telecom sector. They will deepen and broaden the industry.”

The government has announced 100 per cent foreign direct investment (FDI) in the telecom sector through the automatic route as part of its comprehensive package for the telecom sector.

To date, up to 49 per cent was allowed through the automatic route and anything thereafter had to necessarily go through the government route. However, the 100 per cent FDI will not apply to investors from China and Pakistan.

Telecom companies sought government relief

The relief package for the telecom sector comes as several companies including Vodafone Idea and Airtel requesting the government’s help in coming out of the crisis. Airtel’s chairman Sunil Bharti Mittal had earlier said a major portion of the revenues generated by telecom companies goes in paying taxes to the government.

Crisis in Vodafone Idea

Last month, Kumar Mangalam Birla stepped down as the non-executive chairman of Vodafone Idea in a clear indication that the 25-year-old telecom business is beyond redemption.

Earlier, Birla had offered to hand over his stake in Vodafone Idea to the Government in exchange for a bailout package as the company is reeling under a massive debt of nearly Rs 1.8-lakh crore and a cash balance of only Rs 350 crore.

Industry experts had said that AGR liability of over Rs 50,000 crore has made the business nearly unviable. Vodafone Idea has been trying to raise funds from investors over the last year but has not been able to close a deal. Birla’s exit from the board had further hampered the company’s efforts to raise fresh funds, experts added.

 

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