India is considering a one-time settlement of its longstanding demand for billions of dollars in past-due fees from Vodafone Group Plc’s beleaguered local venture, as the government seeks to strengthen ties with the UK, people familiar with the matter said.

Resolution in the nearly ₹2 lakh crore ($22.5 billion) financial dispute may come through a waiver of interest and penalties, followed by a concession on the principal for Vodafone Idea Ltd ., said the people, who asked not to be identified as the discussions are private.

A deal would throw a lifeline to India’s third-largest wireless operator, shore up competition in a sector dominated by Reliance Jio Infocomm Ltd. as well as signal to global investors that New Delhi wants to remedy its reputation for unpredictable policy measures.

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