The Supreme Court of India recently issued a noteworthy ruling that permits Indian telecom companies to pay their Adjusted Gross Revenue (AGR) dues to the government over a ten-year span. This arrangement marks a significant development in the ongoing AGR debate.
Clarifying Adjusted Gross Revenue
AGR is essentially a fee-sharing mechanism that came into effect in 1999 when telecom companies switched from a fixed license fee model to a revenue-sharing fee model. As part of this setup, telecom organizations are obliged to share a fraction of their AGR with the Indian government.
Exploring the Historical Context
This scenario can be traced back to the National Telecom Policy of 1994 which facilitated the liberalization of the telecom sector. Post-liberalization, licenses were granted to various firms for a specified license fee. However, due to the steep nature of these fees, the government offered licensees the option to transition to the revenue sharing fee model in 1999. Consequently, mobile telephone operators became required to contribute a percentage of their AGR to the Indian government as an annual license and spectrum usage charges.
The Long-Standing AGR Litigation
Disagreements over the definition of AGR have led to years of legal conflict. In 2005, the Cellular Operators Association of India (COAI) disputed the government’s AGR calculation definition. Nevertheless, the Department of Telecommunications (DoT) contended that AGR encompasses all revenues from both telecom and non-telecom services. The Supreme Court upheld the DoT’s definition of AGR in October 2019, rejecting a 20-year payment schedule proposed by the central government and backed by telecom companies. Ultimately, the court decided on a ten-year repayment duration for AGR dues.
The Court’s Directions
The court has instructed telecom operators to pay 10% of the total dues demanded by the Department of Telecom by 31st March 2021, with annual installments beginning from 1st April 2021 until 31st March 2031. Default in making payment of annual installments would result in accrued interest, penalties, and potential contempt of court charges.
What This Means for Telecom Companies and the Government
The crux of the AGR dispute lies in its extensive financial implications for telecom firms and the government alike. Post the Supreme Court’s judgment in 2019, it was estimated that telecom operators owe approximately Rs. 92,000 crore in back charges, interest, and penalties on license fees alone. The ruling has put many telecom service providers on the brink of bankruptcy, while also robbing the government of anticipated extra revenue.
The Way Ahead
Despite the current challenges, the evolution of the telecom sector is crucial for advancing India’s digital empowerment. To facilitate this, the government must work towards creating a supportive environment for telecom operators. This would likely involve developing a long-term vision plan, implementing a new infrastructural policy to promote sector growth and improve service quality, and raising resources for the telcos. Strengthening the overall telecom sector and enhancing broadband service accessibility will be vital steps forward in this journey.
