Paper: GS – III, Subject: Economy, Topic: Service Sector, Issue: Adjusted Gross Revenue (AGR).
Context:
The Union Cabinet’s recent decision to freeze Vodafone Idea’s Adjusted Gross Revenue (AGR) dues and restructure repayments has raised the possibility of a government exit through stake sale, with efforts underway to attract a private investor into the financially stressed telecom operator.
Key Takeaways:
| What is Meant by Adjusted Gross Revenue (AGR)? Adjusted Gross Revenue (AGR) is the license fees and spectrum usage charges (SUC) charged by the Department of Telecommunications (DoT) from telecom operators in India. As per DoT, the charges are calculated based on all revenues earned by a telecom company, including non-telecom related sources such as deposit interests and asset sales. |
Government Relief Package:
To alleviate the financial burden on Vodafone Idea, the Union Cabinet approved a relief package that includes the following key provisions:
- Freezing of AGR Dues: The AGR dues of Rs 87,695 crore have been frozen for the next five years. This provides Vodafone Idea with much-needed breathing space and visibility over its future liabilities.
- Rescheduling of Repayment: The repayment of the statutory dues has been rescheduled over a 10-year period, from FY32 to FY41. This extended repayment period further eases the financial pressure on the company.
- Payment Schedule for FY18 and FY19 Dues: The AGR dues for FY18 and FY19 will be payable by Vodafone Idea over the period FY26 to FY31 without any change.
Government’s Potential Exit:
The relief package may pave the way for the government’s potential exit from Vodafone Idea. The government acquired a 49% stake in the company in February 2023 in lieu of its interest dues.
Factors Driving the Exit:
Several factors are driving the government’s consideration of exiting Vodafone Idea:
- Private Sector Interest: Two big corporate groups have reportedly evinced interest in investing in Vodafone Idea at different points in time.
- Government’s Internal Yardstick: The government’s internal yardstick for exiting Vodafone Idea is to sell its stake at a profit.
- Desire for a Viable Telecom Sector: The government is concerned about the highly concentrated nature of India’s telecom sector and wants to ensure that Vodafone Idea remains a viable player.
Potential Stake Sale:
The government is considering the possibility of bringing in an investor from the private sector. Beyond the government’s 49% equity, the new investor could eventually take majority control after the stake sale goes through.
The relief package approved by the Union Cabinet for Vodafone Idea is a significant step towards ensuring the company’s financial stability and long-term viability. The government’s potential exit from Vodafone Idea could attract private investment and further strengthen the company’s position in the Indian telecom sector.
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