Topics Covered:
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
What is AGR?
What to study?
For Prelims: What is AGR? How is it calculated?
For Mains: What is the impact of latest ruling? Issues and ways to address them.
Context: Bharti Airtel and Vodafone Idea have filed a petition in the Supreme Court to review its October 24 judgment on the Adjusted Gross Revenue (AGR) issue.
The petitions challenge the inclusion of notional incomes in the AGR.
Background:
Last month, the Supreme Court upheld the definition of Adjusted Gross Revenue (AGR) calculation as stipulated by the Department of Telecommunications.
This means that telecom companies will have to pay up as much as Rs 92,642 crore to the government.
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.
What’s the issue now?
- In 2005, the Cellular Operators Association of India (COAI) challenged the government’s definition for AGR calculation.
- 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.
- The regulator has 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.
- The government has 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.
- 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.
- 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.
Impact of the ruling:
- Clearly this judgment has significantly damaging implications for India’s telecom industry, which is already reeling under huge financial stress and is left with only four operators.
- Significant investment of several billion dollars has been made in creating world class networks. This order has huge impact on two private operators while most of the other impacted operators have exited the sector.
Sources: the Hindu.
