India: Finance Ministry nixes reduction of universal service fee

Posted on March 26, 2009  /  1 Comments

As those who have followed the discussion on universal service fees on this blog know, universal service fees are usually charged from a company (actually the company collects the money from customers and gives it to the government). The payments go to dedicated fund, from which it is disbursed (or not, for the most part) to connect more people to the network.

India has one of the highest universal service fees in the world–5% of total revenues. We were hopeful, after years of presenting evidence to the government, that this would be reduced (though our preference is for its complete phasing out). The reduction of the rate from 5% to 3% was almost done, but suddenly it has been halted due to Finance Ministry objections.

If it had gone through it would amounted to an INR 2000 crore (roughlly USD 400 million) injection of funds into the industry. And the irony is that the money does go into the consolidated fund of the government to be used for everyday purposes. It will just sit in a dedicated account: poor people’s money, doing nothing for poor people, on a whim. And how much is sitting there now: over USD 4 billion, growing by the day!)

Interestingly, the licence fee cut would not have impacted the exchequer as DoT had planned to reduce telcos’ contribution to the Universal Service Obligation Fund (USOF) for rural telephony, which is paid out of their licence fee, and which is flushed with funds.

1 Comment

  1. India: Finance Ministry nixes reduction of universal service fee.. I agree with your this opinion..
    Thanks for good opinion on this stuff…