Unease of doing business
Feb. 26, 2020

India’s performance in the index of ease of doing business has been quite creditable in recent years. The index, prepared by the World Bank in October 2019, placed India at 63 among the 190 countries it had evaluated.
First, a seemingly flawed definition of what constitutes telecom revenue was coined in 2001 and triggers a prolonged legal battle between phone companies and the government.

Fourteen years later, in 2015, the telecom regulator makes recommendations proposing a change in the definition of revenue used to calculate license and spectrum fee — a change that could have fairly addressed the issue prospectively.
But the Narendra Modi government ignores or fails to act on the recommendations.
Four years later, in 2019, the Supreme Court rules in favour of the government that in effect pushes telecom firms to cough up Rs 1.47 lakh crore. The order ends up impacting even non-telecom public sector companies.

This, in essence, is the bizarre story of missed opportunities that is at the heart of the great Indian telecom mess that not only threatens to wipe out two of the three major players in the sector but also sink several prized PSUs which have nothing to do with telecom.

The story begins with the conflict over what constitutes adjusted gross revenues.
In 1999, the then Union government offered telecom companies the option of migrating to a revenue sharing arrangement from the previous regime of a fixed license fee that was making operations in the sector non-viable.
However, the definition of what constitutes adjusted gross revenues (AGR) — or revenues of companies on which the government can levy a 8 per cent license fee and a 5 per cent spectrum usage fee — was finalised in 2001.

According to this, the AGR should factor in all income accruing to a telecom service provider, including telecom and non-telecom businesses.

The telecom companies were of the view that only income from telecom services is taxable. So in 2003, the operators moved court.

In its judgment last year, the Supreme Court upheld the government’s stance. This impacted not only privately-owned telecom companies like Airtel and Vodafone, but even public companies like GAIL, Oil India, Power Grid Corporation of India (PGCIL), Delhi Metro Rail Corporation and RailTel Corporation.

These PSUs operate in other sectors and telecom isn’t their core business. However, they use the licences for internal operations.

With the Supreme Court order in effect, the Department of Telecom (DoT) has sent notices even to state-owned companies, which are now facing an existential crisis because of dues exceeding a total of Rs 3 lakh crore.

While GAIL India is facing a demand of dues to the tune of Rs 1.7 lakh crore, PGCIL’s dues are estimated at Rs 1.25 lakh crore and Oil India’s at Rs 48,000 crore.

Both the telecom companies and PSUs have separately approached the apex court seeking clarity and relief while no relief has been forthcoming from the government.