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Adjusted Gross Revenue (AGR) issue

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Adjusted Gross Revenue (AGR) issue

What to study?

For Prelims: What is AGR? How is it calculated? What is contempt of Court?

For Mains: What is the impact of latest ruling? Issues and ways to address them.

 Context: The Supreme Court has come down heavily on the Department of Telecommunications (DoT) for issuing a notification last month that asked for no coercive action against telecom companies even though they had not paid the adjusted gross revenue (AGR) dues by the stipulated deadline of January 23.

The Court also initiated contempt proceedings against the telecom companies for not paying the AGR dues.

  • The court also asked DoT to immediately withdraw the notification which said that there would be no coercive action against telcos.

Background:

Last year, the Supreme Court upheld the definition of Adjusted Gross Revenue (AGR) calculation as stipulated by the Department of Telecommunications.

The order by the top court means that the telecom companies will have to immediately clear the pending AGR dues, which amount to nearly Rs 1.47 lakh crore.

What is AGR?

Adjusted Gross Revenue (AGR) is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT). It is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.

How is it calculated and what’s the contention?

As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales. Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services.

The story so far:

  1. In 2005, the Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
  2. Later in 2015, the TDSAT said AGR included all receipts except capital receipts and revenue from non-core sources such as rent, profit on the sale of fixed assets, dividend, interest and miscellaneous income, etc.
  3. The regulator had also included forex adjustment under AGR apart from ruling that licenses fee will not be charged twice on the same income. It, however, exempted bad debt, foreign exchange fluctuations, and sale of scrap to be calculated for AGR.
  4. The government had also raised the issue of under-reporting of revenues to duck charges. The Comptroller and Auditor General of India (CAG) called out telcos for understating revenues to the tune of Rs 61,064.5 crore.
  5. Later, the Telecom Disputes Settlement Appellate Tribunal (TDSAT) upheld the DoT’s definition of AGR (factors against which the license fee is payable) with certain exemptions.
  6. The DoT, however, filed an appeal before the Supreme Court, citing that the TDSAT had no jurisdiction on the validity of terms and conditions of licenses.

Where does the government stand in this situation?

  1. The payout by telecom and non-telecom companies is likely to lead to windfall gains for the central government, which could help it close some of the fiscal deficit gap for the current financial.
  2. At the same time, however, the government will be under pressure to ensure that the telecom market does not turn into a duopoly if Vodafone Idea does indeed decide to shut shop.
  3. It will also have to manage the payouts to be done by non-telecom companies as most of them, such as Oil India, Power Grid, Gail, and Delhi Metro Rail Corporation are public sector units.

What does this situation mean for customers and lenders?

If Vodafone Idea does exit, an Airtel-Jio duopoly will be created, which could lead to bigger bills, considering it was the cutthroat competition in the sector that made mobile telephony and Internet almost universally affordable.

Challenges for telecom sector:

The AGR issue has triggered panic in the banking industry, given that the telecom sector is highly leveraged. Vodafone Idea alone has a debt of Rs 2.2 lakh crore that it has used to expand infrastructure and fund spectrum payments over the years. The mutual fund industry has an exposure of around Rs 4,000 crore to Vodafone Idea.

Sources: the Hindu.