Don’t Wait For Distress Call

Context: The benefits of digitalisation could have been much larger and more widespread had telecom policy been more predictable and less erratic.

Economic reforms in India

• 1991 reform, the most charismatic: Its catapulted India from being a socialist economy with a heart but no trickle-down, to a market-oriented economy with a mind but also very little trickle-down. 
• Pre-1991 period: Principal modes of redistribution were taxation and public sector operations. 
• Post-1991 period: It has been a combination of taxation, technology, smartphones and associated DBT.

Reforms and revolutions in telecom sector

• Positive growth dividend: Every 10% increase in investment in telecom leads to a 3.2% increase in GDP. 
• Mobile phone has become a means for sophisticated financial integration, as shown by the expanding usage of pre-paid payment instruments and mobile banking. 
• Payments through Aadhaar-linked bank accounts have increased efficiency and reduced leakages.
• Benefits of digitalisation could have been much larger and more widespread had telecom policy been more predictable and less erratic. 

Issues associated with Telecom Sector: 

• 2G scam and misallocation of licences in early days of liberalisation;
• Inflated definition of Adjusted Gross Revenue; 
• Conversion of fixed to mobile licences;
• Avoidable Vodafone retrospective tax demand, 
• Dissolution of the first regulator in 1999, among many others, make the dubious list quite lengthy;
• Intense and debilitating price war;
• Unreasonable definition of AGR;
• Extractive spectrum auction regime; 
• March of technology that destroyed comfortable revenue streams of operators;
• Risk of a duopoly looming large.

Way Forward

• Need to meet the large unmet demand for banking services.
• Telecom relief package: To supports proposals that have been repeatedly presented to the government by the regulator, industry associations and think tanks. 
• Provide an immediate relief on payment of licence fee and penalties due to the government.
• Increased FDI limits: From licence tenure 20 years to 30 years, removed charges on spectrum-sharing and proposed timelines for spectrum auctions. 
• It will have a positive short-term impact and perhaps safeguard competition in the future.

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