The Cabinet has approved a relief package for the telecom sector Wednesday. The package lists the reforms for the ailing sector in terms of granting a moratorium on AGR dues, redefining AGR dues, and cutting down spectrum usage charges. On the other hand, the cabinet has also approved a PLI scheme for automobile sectors. The scheme worth Rs 25,938 crores aim to boost the production of electric and hydrogen fuel cells. CNBC-TV18 spoke with some experts to decode both the packages:
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On telecom sector | Nitin Soni of Fitch Ratings: We believe that it is a minor relief, it is not a waiver. It is only a deferment of spectrum liabilities in AGR dues for four with additional interest. The situation Vodafone Idea is right now that the cash generation is insufficient to pay even the interest costs, so this will increase the interest burden. They don't have enough cash to put money into CAPEX. So what I believe is that they will continue to lose the subscriber base and their market position will continue to weaken because they don't have sufficient money to invest and remain competitive in the market. So overall minor relief, but it will only defer their payments, but it is not really a lifesaver.
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On telecom sector | Naveen Kulkarni, CIO at Axis Securities: So one way to look at it is that there is a timeframe as close to four years for the industry as such to get the overall structure in terms of tariffs, in terms of overall cash flows up from where they are currently, right. So if that can be improved upon then there is a business case for Vodafone idea. Right now, what the government has done is that it has provided relief on cash flows, I think which to some extent, I would say is significant, and the period is four years, which is significant. The important factor here is that if Vodafone idea is able to put its act together, raise some funding, improve its network quality and managed to hold on to its subscribers and its market share and also the subsequently the industry is able to take the tariffs up I think there is a business case for Vodafone Idea. So I would say that it is not completely ruled out. But still, it is going to be an uphill task from here.
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On telecom sector | SP Kochhar of COAI: Well, on the face of it, it is a good step that the government has taken. It is an indicator of the thinking in the government circles. If you notice, the first reading shows that all the steps that have been announced are prospective in nature, and will not give too much immediate relief. But it also indicates that maybe the 5G government is aware, and at this point in time, they will announce Greenfield steps, which will help us roll out 5G in a much more cost-effective manner with better procedures with better costs.
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On telecom sector | Peeyush Vaish of Deloitte India: I think the government has taken quite a few bold initiatives today. Absolutely hands down to the government for bringing in probably a lot of initiatives today. I think four years is fairly a long period for the moratorium and I think this clearly paves the wave for good auction happening for 5G. I think the government was very clear in mentioning that we can expect auctions happening in the last quarter because he talked about the timetable so that also gives a message that we are clearly on the way to bring in 5G into India. So that is another piece.
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On telecom sector | Ankit Jain of ICRA: We didn't have any rating on Vodafone idea, but this is definitely a welcome move. Big relief for the sector as a whole. So we expect that moratorium on AGR dues will give a breather of around Rs 14,000 crores for the industry and on the spectrum news, it will be somewhere around Rs 32,000 crores of cash flow relief. Plus a period of four years, gives time to the industry to do the fundamental changes, increases tariffs and organically deleverage their balance sheets. So this is much needed for the industry at this point in time, especially given the fact that the earlier moratorium was ending in an FY22 and the spectrum payments were due in the next fiscal. So this comes as a big relief at the right point in time.
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On telecom sector | V K Vijayakumar of Geojit Financial Services: The measures announced for the telecom and auto industry are sweeping with potential for far-reaching beneficial impact. A four-year moratorium on dues of the telecom sector which covers AGR, spectrum dues and interest payment will bring big relief to the cash-strapped sector. This is positive for banks, too, since banks' exposure too will decline significantly. 100 percent FDI in telecom and redefinition of AGR excluding non-core revenue are welcome steps that can stimulate investment in the industry.
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On auto sector | V K Vijayakumar of Geojit Financial Services: The Rs 26058 cr PLI scheme for autos, auto components and drones is a major initiative to attract advanced auto technology and supply chains into India. This is a timely policy when global supply chains are looking for markets outside China for shifting supply chains. The PLI scheme's goal of investment of Rs 42500 cr in 5 years is ambitious but achievable. In brief, bold reforms.
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On auto sector | Arun Goel, Heavy Industries Secretary: Now, so far as vehicle maker is concerned, everybody is eligible for the scheme. Now, there are two things when the entire vehicle is eligible or a part of the vehicle is eligible. When you're talking of the entire vehicle then, of course, that is a hydrogen fuel cell, electric vehicle or any other future technology vehicle which we may have, so that is an open-ended thing. But you will agree internal combustion engine (ICE) is not a new technology, it is 100 years old, it is improving. Having said that, the new technology when we are talking of connected vehicles, shared vehicles, autonomous vehicles, are coming in ICE also. So the existing ICE manufacturers are eligible to take benefit of this scheme for the new technologies which they will be adding to the ICE. So will a company that is not making electric vehicles or hydrogen fuel cell vehicles right now be eligible for this scheme, Goel said yes and they would be able to take benefits of the scheme. The initial outlay of the scheme when envisaged in November 2020 was Rs 57,000 crore and now, the outlay is approximately Rs 26,000 crore. Talking about the outlay, Goel said the scheme has been approved today and after consultation with our entire industry, we try to identify where we are weak and we have to strengthen our industry where we are weak. Now, this structural change is not going to happen overnight but the government is trying to act as a catalyst. Our requirement has not been cut down by anybody. So under the scheme, the requirement is being fully met with, I invite the industry to encash this requirement and we will see when the fully exhaust it only then you can say the funding has been cut.