With 1.2 billion users, India is the world’s second-largest telecom industry and has seen remarkable growth in recent years. The sector has grown primarily due to favourable regulatory conditions, low prices, expanded accessibility, and Mobile Number Portability (MNP) implementation extending 3G and 4G coverage and changing subscriber consumption patterns. In 2020-2021, the telecom industry contributed 6% to India’s GDP (GDP). From 2020 to 2025, the telecom sector is expected to develop at a compound annual growth rate (CAGR) of 9.4%. However, the smartphone sector in India will expand the fastest, with a CAGR of 15.9% over the projection period. India’s digital Economy is expected to be worth $1 trillion by 2025.
In terms of Foreign Direct Investment (FDI) inflows, India’s telecom sector ranks third, accounting for 6.44% of total FDI inflows. It directly supports 2.2 million employment and indirectly supports 1.8 million jobs. In the telecom business, 100% FDI is now permissible, with 49% of it going through an automated route and the rest going through the government route. Between 2014 and 2021, FDI in the telecom sector surged by 150%, from $ 8.32 billion to $ 20.72 billion. Many telecom services have engaged in the telecom industry, including telecom infrastructure providers such as Basic Cellular, United Access Services, and Commercial V-Sat.
The telecom Industry is not only restricted to India but in the global diaspora accounts as the multiplier of the economic development cutting through all other industries. The industry formulates its base upon the new age of connectivity and communication networking. In the times of the pandemic of covid-19, the telecom industry of the country enabled over 35% of the GDP while directly contributing approximately 6%. During this time, the significance and importance of the company were acknowledged by the Government itself and the vitality of having a strong telecom network was extensively highlighted via the guidelines issued by the Government. This is one of the primary reasons for the Government preparing for a robust functioning system getting knee-deep to enable the release of the latest reforms regarding the sector. Thus connecting the remotest part of the country to charting the international market was the strategy laid down through such practice.
The Indian Government is also very restrictive and protective regarding its telecom industry, which is why the industry, in numerous instances, has tended to face challenges due to the prevalence of such disruptive policies. India, within its country, has implications of restrictions and protective measures through DoT, which is a former restriction imposed on the Indian players involved in the telecom industry. The primary reason stated by the Government for the inculcation of such restrictive policies even after hassled implementation is due to the threat of data breach and piracy, and other indicative threats to protect the country’s national security. Meanwhile, the industry has duly borne consequences due to such policy measures adopted by the Government but still is unable to raise any concern upon the same as it is an essential part of being in the industry, and every player has to abide by the same. Amounting to experiencing challenges such as retrospective taxation and restrictions on the type of equipment that needs to be used, they also suffer from some grave conditions of debts and expenses at the time of telecom licensing, including the involvement of the buying spectrum. Requests have been placed before the Government for liberalizing such coercive and inadequate restrictions, causing massive discrepancies and suffering. More than any other sector, with the rapid pace of growth and development in the telecom sector, it becomes essential for the Government to reconsider such issues that the players are facing every day. Thus the Government needs to have plans for the implementation and introduce policies that can aid in facilitating the growth of the sector concerning the global trend.
The future of the Telecom Industry in India is tied directly to the direction of public policy made by the political executive. In a quasi-federal country like ours, legislative actions help chart the course of an industry or sector. We have already examined the sheer scale of the sector with trends of growth as well as capital gains. However, despite the extensive ownership of various players in the field, the future is one of constant innovation and adaptation. How this era will impact the Indian Economy can be understood by viewing the positive and adverse effects of upcoming policies.
5G: THE WAY FORWARD
One of the first avenues to examine is the impact of 5G services, their roll-out and the aftermath on the market, thereby, the Economy. With 1.17 billion cellular and wireline users as of July 2022, India’s thriving Telecom industry will be the second biggest in the world. As 5G networks spread out throughout Indian cities, players are getting ready to tap into new opportunities for development in a disruptive world. The Covid-19-induced lockdown gave the wireline sector a significant boost as more users began choosing wired broadband internet, perhaps due to the remote-work and remote education paradigm. People resorted to over-the-top (OTT) services for their daily fix of entertainment when movie theatres suspended showings. However, internal rivalry, unfavourable judicial and Government stances on spectrum pricing and adjusted gross revenue (AGR) conflicts, and digital companies launching new ventures on 4G superhighways caused the Telecom sector to struggle.
Since the Supreme Court ruled on AGR dues in September 2020, the BT500 study period (October 2021 to September 2022) has been busy for the industry. The top court gave telecoms a 10-year opportunity to clear their AGR debt, which totals Rs. 1.4 lakh crore. The Government unveiled plans in September 2021 to solve the telecoms’ financial problems, attract investment, and foster healthy competition. This offered the chance to put off paying AGR and associated dues for four years and the choice to pay interest on postponed commitments by converting them into equity. There were also announcements of other improvements to the efficiency and operations of telecoms.
The business also plans to invest in 4G and 5G wireless technologies and strengthen its current optical networking foundation. Additionally, Tejas has been able to increase its expertise in adjacent, fast-growing markets, including 5G O-RAN, 5G direct-to-mobile broadcast, satellite-IoT, and semiconductor chip design, thanks to the purchase of Saankhya Labs, a provider of wireless communication solutions. In-house competence in software, hardware, and chip design, as well as a pervasive range of end-to-end Telecom devices, are among Nayak’s claims.
However not all is bright on the horizon; specific stipulations, policy changes and regulations have caused a dip in gains for the major players in the sector. Bharti Airtel, Reliance Jio, and Vodafone Idea are just a few of the Telecom service providers that would be highly disappointed by the Department of Telecommunications (DoT) decision to maintain the present licence price structure. The operators have long demanded a reduction in the rate of at least two percentage points since they now pay the Government 8% of their adjusted gross revenue (AGR) as a licensing fee.
The Government of India launched the Production Linked Incentive Scheme for Telecom and Networking Products to entice significant investments in Telecom equipment manufacturing and increase domestic production capacity.
From the various measures undertaken by the Government, it is clear that the intent is to encourage the sector’s economic activity and broaden the utility and services to various consumer groups for better economic stimulation. The Government remains invested via policy and development monitoring, while companies are all housing a positive outlook on the future and increasing their involvement. The present capital gains, the continued trend of investments and favourable public policy are all crucial factors that illustrate the positive impact of the Telecom Industry on the Indian Economy.
REVISED GUIDELINES FOR OTHER SERVICE PROVIDERS (OSPs)
The Guidelines for Other Service Providers (OSPs) were liberalised and simplified.
The government has taken steps to provide relaxation to OSPs, and these include:
- The guidelines removed the distinction between Domestic and International OSP. To facilitate OSPs to provide services to customers located in India and worldwide. It also permitted interconnectivity between all types of OSP centers
- It permitted EPABX (Electronic Private Automatic Branch exchange) of the OSP to be located even outside India, but OSP has to comply with all relevant Indian laws
- All the penalties have been removed by the government
- The new regulation supports interconnectivity among different OSP centres, whether of the same company or different companies. And voice interconnectivity is permitted between centres of the same company
- The non-voice BPO service providers will not be regulated by the regulations
- The regulations encouraged work from home and work from anywhere in India. The agents working in such a setup will be known as Remote Agents of OSPs. These remote agents can directly connect with the centralized EPABX or EPABX of OSP or customers using broadband.
These New guidelines have made things quite simpler for OSPs. Withdrawing registration requirements and bank guarantees have made an easy entry into the business. Companies and firms need not take proper permission before setting up BPO. This ease of doing business will attract more companies and will, give a boost to the industry and create huge jobs.
The new regulations are a boon for the industry, but there are a few downsides too. The relaxation of non-registration is an advantage in the early stages. But as the industries grow and new players enter the market, non-registration of these businesses can create more problems. Generally, a company with registration is considered more trustworthy and attracts more clients.
Another disadvantage is that the new amendments provide for self-regulation by OSPs. This provides huge freedom to the OSPs, and this might be misused by the companies and firms. This might negatively impact the industry. A regulatory system will properly manage the operations of the OSPs and will ensure efficiency.
Gunjan Arora
Senior Associates
Maheshwari and Co.
