Telecom Sector crisis

What is the issue?

Despite its considerable place in the Indian economy, the telecom sector is under stress due to mounting debt and other issues.

How significant is the telecom sector?

• Telecom sector has greatly contributed to the increased GDP growth rate that India has had over the last few years.
• The sector has contributed around 6% to the GDP and it is expected to increase to an even more significant level.
• This is given the rising mobile phone subscribers and those accessing the Internet via phones.
• Also, government's ambitious plans like Digital India and Smart-cities are dependent on this sector and its sound financial health.

What is the present scenario?

• Despite its importance, the sector is currently witnessing its worst phase ever.
• There is a cumulative debt of around Rs.5 lakh crore in the telecom sector.
• Also, the revenues are constantly falling down, further worsening the debt crisis.
• Telecom service providers pay as much as 30 per cent of their revenues in taxes and levies for spectrum and operating licences; the tax component alone being 15 %.
• The increased 18% under the GST regime has made the services more expensive at a time when it should have been reduced.

How has the government responded?

• The sector’s rising debt and falling revenues will impact broadband penetration and act as a drag on growth.
• Responding to this, the government recently formed the Inter-ministerial Group (IMG) to look into the issues.
• The IMG recommended a number of short-term and long-term measures which include -

1. lowering levies such as i) annual licence fee, ii) spectrum usage charges (SUC),  iii) GST.
2. deferring of spectrum auction to the next fiscal.
3. more time for payment of auctioned spectrum.
4. cut in interest rates.

What are the concerns?

• Despite some bold recommendations, the IMG seems to have addressed only the debt issues of the sector.
• The licence fees and spectrum usage charges are more pressing issues that need immediate relief to free the sector of the financial struggle.
• Despite India’s telecom tariffs being some of the lowest, telecom service providers are unable to raise tariffs.
• This is because of the high competition prevailing in the sector at present due to over-the-top operators and coming in of new technologies.

What is to be done?

• The need of the hour is for the government to see the sector as an essential service and not a revenue generator.
• The annual charges should be rationalised so as to cover only the administrative expenses; the other source being money from spectrum auctions.
• Government should ensure a regulatory environment which facilitates innovation and investment, and addresses the financial woes of the sector.

Source: BusinessLine