The Union Cabinet on Wednesday cleared a relief package for the stressed telecom sector. The new package will give relaxation to telecom companies on payment of their long outstanding dues, including a four-year moratorium on spectrum instalment, which is due in April 2022. The Cabinet has also allow 100% Foreign Direct Investment through automatic route in the telecom sector.

Companies like Vodafone Idea will benefit from the new package as it owe a huge amount to the government in statutory dues, sources said.

According to the new package, telecom companies could convert interest on their spectrum dues amounting to four-year moratorium, into government equity.

It could also help telecom companies to pay dues worth thousand of crores of rupees in terms of spectrum fees, to the government.

According to news agency ANI, the PM has decided to rationalise the definition of adjusted gross revenue (AGR). Ashwini Vaishnaw, Minister for Communications, said all non-telecom revenue will now be taken out of AGR.

Vaishnaw added that telecom sector will see nine structural reforms and five process reforms. These reforms will change the framework of the entire telecom sector. They will deepen and broaden the industry.

He said an interest rate of MCLR + 2% interest rate has been offered and the penalty has been completely scrapped. This will pave way for large-scale investments in the telecom sector.

The minister further said that Cabinet the government has decide to do away with heavy regime of heavy interest, penalty and interest on penalty on payment of license fees, spectrum user charges and all kinds of charges. Now, annual compounding (of interest) will be done instead of monthly compounding.

The decision by the Cabinet has come just weeks after Kumar Mangalam Birla resigned as chairman of the cash starved Vodafone Idea.

Even Sunil Bharti Mittal, chairman of Airtel, the country's second largest telecom company, had sought government's help.

He had said that a major chunk of the telecom industry's revenues goes in paying government taxes.