AGR crisis: Govt may dip into USOF to support telecom companies

By: |
March 02, 2020 6:15 AM

In its 2018 report, the Comptroller and Auditor General of India had observed that as on March 2017, an amount of Rs 48,407.54 crore has still not been transferred to the USOF by the government.

As on March 2014, the USOF had total accrual of Rs 58,579.35 crore of which only Rs 24,896 crore was disbursed to the department of telecommunications for rural telecom projects.As on March 2014, the USOF had total accrual of Rs 58,579.35 crore of which only Rs 24,896 crore was disbursed to the department of telecommunications for rural telecom projects.

At a time when the government is looking for solutions to help the telecom industry tide over its worst crisis — payment of AGR dues — it can surely look at tapping the Universal Service Obligation Fund (USOF) where 50% of the funds — Rs 52,000 crore — are lying unutilised, according to sources.

However, to utilise this fund for any purpose other than providing for rural telephony projects, the government would first need to amend the USOF Act, which could be done when Parliament resumes for the Budget session, the sources added.

Since the private operators have provided more than sufficient connectivity in rural areas — much more than the state-owned BSNL (see chart) — surely they can be relieved of the burden of contributing to the USOF and the balance fund can be used for easing their burden of payment of AGR dues.

Of the total 1151.44 million mobile subscribers in the country, 507.46 million are rural users. Of this, BSNL has only 37.45 million rural subscribers. In contrast, Bharti Airtel has 144 million, Vodafone Idea 173 million and Reliance Jio 151 million rural subscribers.

To put things into perspective, the USO money gets transferred to the Consolidated Fund of India and funds are allocated for rural telephony only when such projects are approved by the government. As such, the large corpus is generally used by the government to bridge its fiscal deficit.

Looking at the funds which have accrued to the USOF since its inception on April 1, 2002, it becomes clear that disbursal for telecom connectivity projects in rural areas is sparse. Total accrual in the funds as on date is Rs 1.04 lakh crore. Against this, only Rs 52,000 crore has been disbursed for telecom projects so far – meaning that the government has spent the balance Rs 52,000 crore for other purposes. Of the amount disbursed, the bulk – Rs 21,889 crore – has been disbursed for the BharatNet project which aims to connect the gram panchayats with optic fibre for broadband connectivity. Here, the disbursal accelerated only 2014 onwards when the BJP government made it part of its theme project called Digital India.

As on March 2014, the USOF had total accrual of Rs 58,579.35 crore of which only Rs 24,896 crore was disbursed to the department of telecommunications for rural telecom projects.

In the past, telecom minister Ravi Shankar Prasad has written to finance minister Nirmala Sitharaman that the USOF levy on telecom operators be cut by 2 percentage points to 3%. Though this demand has not been acceded so far, it’s clear that even the telecom ministry is of the view that the the fund is used more for bridging fiscal gaps rather than for providing telecom connectivity in rural areas.

Why the government is loathe to reducing the USOF levy can be understood by looking at its design. The money collected goes into the Consolidated Fund of India and stays there and there’s no check on government spending it elsewhere. Only once telecom projects are approved by the government, funds are transferred to the DoT through the approval of Parliament. This means that for better part the government uses the money to manage its books rather than spending it for telecom-related projects in rural areas.

Recognising this anomaly, the Telecom Regulatory Authority of India (Trai) had first in 2015 recommended that the USOF levy be reduced by two percentage points.

In its 2018 report, the Comptroller and Auditor General of India had observed that as on March 2017, an amount of Rs 48,407.54 crore has still not been transferred to the USOF by the government.

Telecom operators pay a revenue share licence fee of 8% of their AGR to the government. Of this, 5% goes to the USOF and 3% to the general exchequer. Since theoretically the general exchequer is supposed to utilise only the 3% of the amount for balancing its books, it would not lose anything if the USOF levy is reduced. However, in reality since the USOF money is used for purposes other than for what it is collected, no government welcomes the idea of reducing the levy.

This is what Prasad had written to the finance ministry on June 18, 2019: “Given that rural teledensity has significantly increased since the time the Fund was set up in 2003, it is proposed that USOF levy maybe reduced from 5% to 3%. The 2% USOF levy reduction may be made available to the telecom service providers provided that this amount is utilised by them for carrying out research and development for development and deployment of indigenous technologies in the country.”

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Future-ready: BPCL plans Rs 1-lakh-crore investment in 5 years
2Revival plans: Promoters may invest Rs 10,000 crore in Vodafone Idea, says govt
3Tata Steel signs Sea Cargo Charter framework to reduce GHG emissions