The group of ministers on telecom on Thursday decided to allocate more spectrum to wireless service providers.
The GoM said the finance ministry would fund the defence forces' plans to upgrade their communication systems, thus allowing them to utilise spectrum more efficiently and free additional bandwidth for use by telecom service providers.
The lack of spectrum has been a major concern for cellular firms, most of which are operating with 6.2 Mhz of bandwidth.
In Delhi, only Bharti has about 10 Mhz of spectrum to service its over 1.2 million subscribers. In contrast, the global standard is 17 Mhz per operator per circle.
Repeated demands by cellular operators for additional spectrum were not met by the government as the defence forces refused to make available unused radio waves for commercial purposes.
A number of meetings between high-ranking officials in the telecom department and defence ministry also failed to break the deadlock.
The matter was then referred to the GoM.
Shourie said the WPC had identified key cities in the country where telecom traffic congestion was high. These cities would be accorded high priority while allocating additional spectrum.
The GoM has also decided to provide incentives, like lower licence fees, to those operators who efficiently utilise the spectrum made available to them.
"If an operators manages to accommodate more subscribers with a given spectrum then the government will look at rewarding it, maybe in the form of a reduced licence fee. On the contrary, if operators are found to be inefficient, then the spectrum will be taken away," Shourie said.