Telecom reforms: Cabinet approves 100% FDI through automatic route
The Union Cabinet on Wednesday approved some much-needed reforms in the telecom sector, including 100% foreign direct investment (FDI) through the automatic route. It also approved a four-year moratorium for telecom companies to pay their AGR (Adjusted Gross Revenue), spectrum, and unpaid dues. The relief package is aimed to ease the country's already stressed telecom sector. Here are more details.
Notably, the new FDI rule will apply to all areas of the telecom sector. While 100% FDI was already allowed in this sector, only 49% was allowed under the automatic route. For the rest, it required government approval for security concerns. Thus, the new FDI rule will enable foreign investors to invest without requiring prior approval from the Reserve Bank or the government.
Allowing 100% FDI through automatic route had been under consideration of the Telecom Commission since 2017. However, this automatic route policy will not be applicable for firms from India's neighboring countries like Pakistan and China. This April, the government had made some policy changes that require companies from any country that shares a border with India to approach the government for investments.
Telecom Minister Ashwini Vaishnaw said the Cabinet has approved nine structural reforms for the telecom sector. He said the Cabinet has approved rationalization of spectrum user charges, among other things. To ease cash flow issues faced by many telecom companies, Vaishnaw said the government has decided to rationalize the definition of AGR. AGR has been re-defined to exclude the non-telecom revenue of telecom companies.
AGR has been a subject of contention between the government and telecom companies for years. It is regarded as a major cause of stress in the sector. AGR refers to the usage and licensing fees that telecom operators pay to the government.