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Monday, 01 July 2013 02:16
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From telecom to tax assessees, govt gets friendly


After several years of adversarial relations with industry during which telcos were asked to scrap intra-circle roaming pacts for 3G services, told their efficient 900 MHz spectrum would be taken back and that there would be no extension of their 2G licences unless they played ball, the government has done well to signal a new beginning. The problem started when, after then telecom minister A Raja gave away most available spectrum to a chosen few, telcos had no option but to pay a king’s ransom for 3G spectrum in 2010; while the CAG used this to arrive at its Rs 1.76 lakh crore loss figure, the then telecom regulator suggested the 3G price be used as the base price for future 2G auctions after the Supreme Court cancelled the Raja licenses. But since the economic situation had changed dramatically by then, and firms had over-extended themselves in the 3G auctions and in overseas purchases in the case of Bharti Airtel, the bigger players never participated in the auctions. Since the government felt industry was deliberately trying to sabotage the auctions — the auction price would also determine what they would pay for their ‘extra’ spectrum — it turned down the applications of telcos to renew some of their 2G licenses after the 20-year life came to an end. Add to this the Vodafone retrospective tax amendment, and the investment climate for telecom was badly vitiated with no firm wanting to invest big money anymore.

With the Empowered Group of Ministers deciding last week that the matter of fixing a base price for the 2G auctions would be referred to the Trai, under a new chief now, the industry has one more chance to get back on track. As FE reported in early June, the Trai chairman has already said he will align the base price with current market realities. With a reasonable base price, all players will participate in auctions. And once these players have 2G spectrum, the government will be able to renew their licences. This will leave the issue of 3G intra-circle roaming that is in the courts. Hopefully, the issue of taking away the 900 MHz spectrum and replacing it with 1800 MHz spectrum — refarming, in telecom jargon — will also be referred back to Trai for a full consultation since, the last time around, this never happened.

Meanwhile, in a measure that showed how serious the government is, the finance ministry issued a circular on a Saturday scrapping an earlier one that almost ensured the taxman went overboard in taxing MNCs who were doing R&D/contract work in India — new 'safe harbour' rules that further clarify matters have also been promised soon. With the Cabinet clearing a hike in gas prices last week, the only ministry that appears to be missing in the attempt to placate investors so far seems to be the industry ministry — it has not issued important clarifications for FDI in multi-brand retail for many months now and continues to oppose foreign pharma firms buying Indian ones though there is little evidence to suggest, as it believes, that this is causing any shortage of medicines or a hike in their prices.


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