Cabinet Approves 4 Year AGR Moratorium, Major Relief To Vodafone Idea

This announcement came from Telecom Minister Ashwini Vaishnaw, and was part of the Cabinet announcements on Wednesday

The Union Cabinet has announced a four-year moratorium for telecom companies to repay their dues towards the adjusted gross revenue (AGR) that they owe the government. Union Minister for IT and Telecommunication Ashwini Vaishnaw said that this relief would be applicable from October 1.

This move by the government is expected to provide a major relief to debt-ridden telecom companies like Vodafone Idea Limited. The telecom company is reeling under a pile of debt of nearly ₹1.9 lakh crores and has repeatedly indicated that its ability to continue as a going concern is under threat.

By placing a moratorium on AGR due payments, the government has paved a way for Vodafone Idea to reduced its immediate cash-flow problems. It is supposed to pay nearly ₹9,000 crores towards its AGR dues in March 2022.

Vaishnaw also said that a system of charging penalty and interest on penalty was also being scrapped. Further, a regime of monthly compounding on dues was being replaced with a yearly compounding regime that would be charged at the Marginal Cost of Fund Based Lending Rate (MCLR) plus 2%. Those telecom companies that choose to avail of the moratorium would need to pay interest, which Vaishnaw said was necessary to protect government's revenues.

Also Read: India's GDP Grows 20.1% In Q1 FY22, Helped By Low Base Effect

Vaishnaw also announced a rationalisation of the definition of AGR, that would now not include non-telecom revenue. He also announced 100% foreign direct investment (FDI) will now be permitted under the automatic route and that all future know-your-customer (KYC) in telecom would now be digital.

The Cabinet announcements on the telecom sector comes right after a report in the Economic Times that the government was open to debt to equity conversion in Vodafone Idea, and picking up a token stake in the company to encourage investments. A consortium of banks led by the State Bank of India appealed to the government to go easy on the company in their efforts to protects their exposure to the company.

Also Read: Indian GDP Estimates Unchanged At 9.5%, But Global Recovery Slowing: IMF

Vodafone and Idea decided to combine forces in 2018, creating Vodafone Idea Limited, to take on bigger competitors - Reliance Jio and Bharati Airtel. However, a 2019 ruling by the Supreme Court upholding the calculations of the government's AGR definition that included even non-telecom revenue added to the stress of a sector impacted by Jio's disruptive entry into the sector in 2016.

This left Vodafone Idea with AGR dues worth nearly ₹58,000 crores, of which it has repaid ₹7,800 crores. In contrast, Airtel's dues stack up close to ₹45,356 crores, of which it has repaid ₹18,400 crores.

In September last year, the Supreme Court permitted telecom companies to repay their dues over a 10-year (that implies a 10% repayment of dues every year) period.

The entire cabinet announcement can be viewed here.

Updated On: 2021-10-13T10:00:09+05:30
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