AGR crisis to haunt Modi govt just as 2G scam spooked UPA

The Congress-led UPA and BJP-led NDA governments have something in common. It seems three previous governments and the current one- UPA-1, UPA-2, Modi-1 and Modi-2 - don't really understand the telecom sector. After the recent judgement of the Supreme Court asking telcos to pay Rs 1.47 lakh crore to the DoT (Department of Telecommunications), the AGR (adjusted gross revenues) crisis has put the government in a tight spot. How?

The amounts due on telcos could possibly lead to closure of one or more telcos in the near future. The telecom sector has already witnessed major consolidation over the past three years, and with more going out of business, there is going to be a major disruption across the telecom sector, the Indian economy, and the job market in addition to a loss of government's revenues, and a blot on the reputation of brand India. Not to forget, the Supreme Court judgement also covers non-telecom PSUs like GAIL, PowerGrid Corporation, Oil India and GNFC who have been asked to pay some Rs 4.39 lakh crore. These PSUs would likely go bankrupt if there were asked to pay the amount by DoT.  

In short, the government has a lot to lose in the aftermath of AGR crisis. DoT earns annual revenues in the form of license fees and spectrum usage charges. The government taxes the sector with a GST rate of 18 per cent - among the highest in the world. Then, it earns substantial revenues almost every other year in the form of spectrum auctions. If the number of operators comes to two or three, all these revenues sources would be majorly impacted.

All of this could have been avoided if someone in the government (DoT to be precise) could have anticipated the current crisis. The AGR dispute in not new; it's been lingering for over 16 years. If the government wanted, it could have modified the definition of AGR long ago to save the telcos.

Also Read: AGR dues: Who hurts if Vodafone Idea goes down?

Some recent reports suggest government is now planning to introduce new regulations (through an ordinance) to modify the AGR definition that will exclude non-telecom revenues of telcos. That would certainly bring relief to the telcos but bringing an ordinance now would create a bigger trouble for the government.

First of all, having any such ordinance is not challenging before March 17 - the next hearing of the Supreme Court on the AGR matter - given the time constraints. By that time, telcos like Airtel and Tata Tele would have cleared their AGR dues - as promised by them - whereas Vodafone Idea would have paid part of its dues of Rs 53,039 crore. In case such an ordinance comes and becomes a law (after Parliament's approval), government would be opening the door for telcos to file legal cases against it. Vodafone plc, the parent company of Vodafone Idea, could possibly sue the government for favouring other entities (for instance, non-telecom entities) in the International Court of Justice, says an expert.

Also Read: Panic, confusion and payment promises from telcos after Supreme Court's AGR blow?

So on one hand, the government cannot favour telcos by waiving penalties/interest on AGR dues - even if it wants to - since that would be in contravention to the Supreme Court's order. On the other hand, it cannot change regulations to favour some entities. To put it simply, the government is stuck between the rock and hard place where it can only witness telcos dying, and the destruction caused by such an eventuality.

Nobody argues that the government is wrong, or the telcos are right in this AGR matter. In fact, telcos are being blamed for dragging the matter in the courts long enough when they should have cleared the case long ago since they were liable to pay AGR dues on all forms of revenues (telecom and non-telecom) as per the original license agreement.

While the Manmohan Singh-led UPA government made it to global headlines for its alleged involvement in the Rs 1.76-lakh crore scam that included opaque issuance of telecom licenses in 2008, the Modi government is going to be blamed for creating a much bigger mess. With the AGR crisis just beginning to unfold, the next few weeks are going to be critical for both telcos and the government.