USOF: Funds Meant For Rural Connectivity Being Spent Elsewhere

When telecom minister Ravi Shankar Prasad wrote to finance minister Nirmala Sitharaman before the presentation of this year’s Union Budget that the universal social obligation fund (USOF) levy on telecom operators be cut by 2 percentage points to 3%, he probably knew that this fund is used more for bridging fiscal gaps rather than for providing telecom connectivity in rural areas.

Looking at the funds which have accrued to the USOF since its inception on April 1, 2002, it becomes clear that disbursal for telecom connectivity projects in rural areas is sparse. The total accrual in the funds as on date is Rs 99,674.59 crore. Against this, only Rs 49,120.35 crore have been disbursed for telecom projects so far —meaning that the government has spent the balance Rs 50,554.24 crore for other purposes. Of the amount disbursed, the bulk Rs 20,473 crore has been disbursed for the BharatNet project which aims to connect the gram panchayats with optic fibre for broadband connectivity. Here, the disbursal accelerated only 2014 onwards when the BJP government made it part of its theme project called Digital India.

As on March 2014 the USOF had total accrual of Rs 58,579.35 crore, of which only Rs 24,896 crore was disbursed to the department of telecommunications for rural telecom projects.

Why the government is loathe to reduce the USOF levy can be understood by looking at its design. The money collected goes into the consolidated fund of India and stays there and there’s no check on government spending it elsewhere. Only when telecom projects are approved by the government, funds are transferred to DoT through the approval of Parliament. This means that for better part, the government uses the money to manage its books rather than spending it for telecom-related projects in rural areas.

Recognising this anomaly, the Telecom Regulatory Authority of India (TRAI) had first in 2015 recommended that the USOF levy be reduced by two percentage points.

In its 2018 report, the Comptroller and Auditor General of India (CAG) had observed that as on March 2017, an amount of Rs 48,407.54 crore has still not been transferred to the USOF by the government of India.

Telecom operators pay a revenue share licence fee of 8% of their adjusted gross revenue to the government. Of this, 5% goes to USOF and 3% to the general exchequer. Since theoretically the general exchequer is supposed to utilise only 3% of the amount for balancing its books, it would not lose anything if the USOF levy is reduced. However, in reality since the USOF money is used for purposes other than for what it is collected, no government welcomes the idea of reducing the levy.

This is what Prasad had written to the finance ministry on June 18: “Given that rural teledensity has significantly increased since the time the Fund was set up in 2003, it is proposed that USOF levy maybe reduced from 5% to 3%.”―Financial Express

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