Why in news?
Inter-Ministerial Group (IMG) constituted for resolving the crisis in the telecom industry recently published its report.
What is the situation in the Telecom Sector?
- The industry has an outstanding loan of over Rs 4.6 lakh crore to various financial institutions.
- It has also deferred payment liabilities of about Rs3.1 lakh crore to the government.
- Also, as over Rs.9 lakh crore has been spent on capex, the industry needs around Rs 140,000 crore to merely survive.
What are the reasons?
- The reason for such high financial crisis in the sector is due to the exorbitant government levies.
- The old system of high-taxation which was followed when spectrum was given for free is continued even today.
- As a result, the share of revenue going to the government through licence/spectrum charges rose from 11% in FY07 to 32.4% in FY17.
- Also, TRAI’s auctioning process that involved releasing only a small band of spectrum ensured that bids stayed exorbitantly high.
- Also, the reserve prices which are fixed based on the previous auctions wasn’t sensitive to the existing market conditions.
- This made it harder for the telcos as they had to pay huge sums for voice spectrums similar to 4G, although demand was not supportive.
What are the IMG recommendations?
- Reserve price of spectrum may be modified to make it more reasonable and in line with international best practices.
- Automatic annual renewal of spectrum for existing telecos like in the US can be considered.
- This will prevent sky rocketing of spectrum prices due to irrational annual competitive bidding.
- Also, reducing the high annual license fee obligations needs to be considered.
- Although IMG studied the sector and made some suggestions, it has largely left it for the awaited ‘New Telecom Policy’ for making structural changes in levies.
Source: Financial Express
