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RSTV IAS UPSC – Challenges in Telecom Sector

  • IASbaba
  • March 19, 2019
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The Big Picture- RSTV
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Challenges in Telecom Sector

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TOPIC: General Studies 2

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation

In News: The Department of Telecommunications has asked the finance ministry to offer some GST-related relief to telcos and to bring down import duties of network equipment, but the ministry is not considering any other company specific relief measures as sought by Vodafone Idea.

What is the issue?

Speaking to reporters on Tuesday, telecom secretary Aruna Sundararajan said the industry needs to speak in a cohesive voice while seeking further financial relief.

The industry body Cellular Operators Association of India (COAI) had written to telecom minister Manoj Sinha, urging that the Rs 35,000 crore input tax credit due to telcos from the government be adjusted against spectrum payments and levies as a measure to help carriers overcome financial distress. But, the letter added, that Jio has a dissenting view on the matter.

The industry had also called for a rollback of the basic customs duty increase on several telecom equipment in October 2018 and the duties imposed on printed circuit boards used in them in a bid to curb non-essential imports and address its current account deficit as well as encourage the ‘Make in India’ initiative.

Indian Telecom Sector

The Indian telecom sector has witnessed a paradigm shift—crossing the billion-user mark and rolling out new technologies along with other leading markets. With BharatNet, EoDB, GST, easier M&A rules and the draft National Digital Communications Policy 2018, the overall situation has remained forward-looking. Telcos are also investing heavily to meet the government’s ambitious targets—universal broadband coverage (50Mbps), 10Gbps at all gram panchayats, 10 million public Wi-Fi hotspots by 2022. Other challenges straining an already stressed sector, including poor rural connectivity and lack of adequate spectrum for service providers, are also being taken care of.

Connecting all citizens, and thereby laying a strong foundation for Digital India, is at the top of the government’s priority. Telcos’ inclusive approach led to increased teledensity, from 75% in June 2014 to 93% in March 2018, with 305 million new subscribers. The mobile internet subscriber base doubled from 233 million in March 2014 to 425 million in December 2017, clocking 75% rise in overall internet coverage. Data usage has also grown in tandem. Broadband access has grown seven times, from 61 million subscribers in March 2014 to 412 million subscribers in March 2018.

  • To achieve its targets, robust telecom infrastructure is critical. For this, the industry ensured doubling of the aggregate telecom infrastructure over the last four years. Under BharatNet, 1 lakh gram panchayats were connected with high-speed optical fibre cable by December 2017. The plan is to connect all 2.5 lakh gram panchayats by March 2019.
  • A 17% increase in internet traffic in 2015-16 resulted in an absolute increase of $103.9 billion in India’s GDP during the year. Mobile payments more than doubled from 168 million in November 2016 to 380 million in December 2017, moving towards a cashless digital ecosystem.
  • The draft National Digital Communications Policy 2018 has set ambitious targets. It aims to make broadband connectivity ubiquitous while facilitating digital sovereignty, adding 4 million new jobs and increasing the sector’s contribution to GDP to 8% from the current 6%.

But despite this, the sector is currently facing its worst phase ever and needs the government to step in. The sector is currently finding it increasingly difficult to manage its cumulative debt of almost ₹5 lakh crore, with revenues of less than ₹ 1.8 lakh crore, and steadily falling. Much of the ambitious plans of the government like Digital India and Smart-cities are dependent on the sector and its sound financial health. Government must address the sector’s needs of lower taxes & levies to ease financial stress.

Formation of the Inter-ministerial Group (IMG)

To look into the deteriorating health of the telecom sector. The suggestions included lowering levies such as annual licence fee and spectrum usage charges (SUC) as well as the goods and service tax (GST) to a level apt for an essential service like telecom.

  • The telecom service providers pay as much as 30 per cent of their revenues in taxes and levies for spectrum and operating licences. Of this, around half was the tax component. Under the Goods and Service Tax regime (GST), this has gone up to 18 per cent, making the services more expensive at a time when it should have been reduced. Essential services have either got a nil GST rate or the lowest slab of 5 per cent.
  • There is an immediate need for relief on licence fees and spectrum usage charges as recommended by the telecom regulator. Unless these issues are not resolved, the industry will continue to struggle financially. The fact is money made from spectrum auctions should be seen as adequate and the annual charges should just be used to cover administrative expenses.

The Way Ahead

An essential service and not a revenue generator: The need of the hour is for the government to see the sector as an essential service and not a revenue generator. Deloitte, in a report on the economic impact of mobile phones, estimates that for a given level of mobile penetration, a 10 per cent substitution from 2G to 3G increases GDP per capita growth by 0.15 percentage points. Similarly, doubling of data use leads to an increase in GDP per capita growth rate of 0.5 percentage points. And further, a 10 per cent increase in penetration of increases total factor productivity in the long run by 4.2percentage points.

Telecom is the second highest revenue earner for the government, after income tax: The sector is expected to contribute as much as 90 per cent of the government’s non-tax revenue. Digital India programme is also almost completely dependent on the telecom sector. The roll-out of broadband and Internet services requires enormous investments to the tune of ₹2.5 lakh crore over the next 3-5 years for spectrum, technology, equipment and fibre-optics backbone. Therefore, the financial health of the telecom industry has to be safeguarded.

A significant change in the lives of Indians: Mobility services have brought significant changes to the lives of people. Farmers and fishermen are able to get produce to markets better and secure better prices. The sector employs as many as 4 million people, more than half of which are indirectly employed.

Improved policies and regulations: There is an urgent needs for a regulatory environment which facilitates innovation and investment, and addresses the financial woes of the sector.

Connecting the Dots:

  1. The dismal scenario in the telecom industry is largely due to the gap between intent and execution. Examine the statement in detail.
  2. Communication is critical to national security.’ In light of this statement, critically analyse the importance telecom sector in India.

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