One minute read. Written by Ishaan Kanodia – a grade 12 student.
Before we get into the crisis (or dispute), a little background:
According to the Telecom Regulatory Authority of India (TRAI). 1.17 billion Indians have mobile subscriptions. Telecommunication companies or telcos that provide these services charge a periodic fee from their users called revenue. Some of the largest telcos in India are Bharti Airtel, Vodafone Idea, Tata Teleservices, and Reliance Jio.
What is adjusted gross revenue?
Under the Indian Telegraph Act 1885 the government gave licenses to the telcos to operate in exchange for a fixed annual fee. Telcos often defaulted on the payments as the fixed fees were high. In 1999 the Government swapped to the National Telecom Policy, under which the fee would now be calculated as a share of the company’s adjusted gross revenue. The AGR is calculated after allowing certain deductions permitted by the Government, and as of 2013, telcos had to pay 8% of this license fees.
What is the dispute about?
In October, 2019, the Supreme Court of India ruled that the Adjusted Gross Revenue ( AGR) definition interpreted by the telecommunication companies was incorrect. It resulted in a directive to the companies to cumulatively pay a license fees and penalty of Rs. 1.7 lakh crores. This is known as the Indian Telecom Crisis or the AGR crisis. Telcos argued that the definition should only include their ‘core revenue’ – broadband, cellular, etc, however the government argued that the definition must and always did include ‘non-telecom revenue’ as well. Essentially, this meant that other than the normal money earned by these companies – by providing services to us – the profits earned from investments, forex gain, installation charges, etc. would also be included in the definition.
Thus, the companies would have to pay a much larger fee than what they had anticipated. In order to get relief from this, the companies filed a case, alleging that the Department of Telecommunications (DoT) had illegally altered the definition. In 2015, TRAI ruled in favour of the telcos, but the DoT challenged this verdict in the Supreme Court.
What are the consequences?
The Supreme Court ruled that the telcos would have to pay the entire dues and the DoT’s definition of AGR was correct. This translated into a nightmare for telcos: Vodafone Idea, Airtel, and Tata Group would have to pay 53000, 36500, and 13800 crores respectively.
For a company like Vodafone Idea, which was already suffering major losses, paying this would mean bankruptcy. Airtel and Tata Group are still in a better position to pay. As of today, these companies have paid a fraction of their dues to the Government, however the Supreme Court has directed them to pay the remainder in a short time span. This not only threatens the existence of a company like Vodafone Idea, but, more importantly, has far reaching impacts on the economy.
These companies borrowed huge sums of money from private and public banks. If either of these companies goes bankrupt, it would translate into a disastrous situation for the banks as they would not pay back their loans and thus further strain the banking system. Banks facing too many bad loans would be forced to lend conservatively and the economy would face a shortage of credit.
In times where, due to COVID-19, businesses are shutting down, airlines are facing a viability crisis, and the number of bad loans is exponentially increasing , a crisis as damaging as the AGR crisis would be unfortunate to say the least.
Written by Ishaan Kanodia.
Ishaan is a student of Sanskriti school. He is sixteen and at such a young age he is already a stock market investor. Along with that he is a skilled debater and has won many accolades in MUNs