The demise of Vodafone Idea is highly possible, if not imminent. It will be bad for the promoters, the employees, the bankers concerned, the telecom sector, the economy, indeed the entire nation. The surprise is that everybody — from politicians and bureaucrats to experts and stakeholders — was aware of this possibility. It is not a black swan event; it was written on the wall; everybody read the writing but nobody did anything to prevent the calamity. It is worth examining the weird paralysis that precluded any meaningful decision and action.
The paralysis was occasioned and fashioned by the perverted public discourse that has proved to be the bane of economy (and much else) in Independent India. Animated with the socialist spirit, public discourse and political debate are carried out in an anti-business phraseology. Accordingly, businesspersons are blood-sucking capitalists who fatten at the expense of everybody else.
A natural corollary is the belief that government policy shouldn’t help any businessperson — at least in public view. Politicians and industrialists have a lot of dealings in private; but the former don’t want to be seen too close to the latter; this could attract such epithets as ‘a stooge of big business’ and ‘anti-poor.’ However genuine any support to a company or even a sector may be, it would be dubbed as cronyism.
The revival of VI, indeed of the entire telecom sector, is predicated upon rational action — or at least action to reverse the irrational, statist measures like the adjusted gross revenue (AGR), a fee-sharing mechanism between the government and telecom companies. The latter are supposed to share a part of AGR with the government.
What constitutes AGR remained a point of contention between the telcos and the government, leading to a legal battle for over a decade. The government’s contention was illogical: it wanted AGR to include all revenues from both telecom and non-telecom services. The telecom companies maintained that AGR should pertain to only core services, but they lost the case in the Supreme Court because the policy was written and read by the Department of Telecommunications (DoT) in a manner which apparently ruled out any other interpretation.
The result? VI’s total dues are in the region of Rs 1.8 lakh crore, including over Rs 50,000 crore of AGR. The company owes about Rs 23,000 to lenders, mostly to public sector banks.
Kumar Mangalam Birla has already resigned from the company as non-executive director and non-executive chairman. Birla’s partner in the venture, Vodafone Group Plc, has also made clear that they won’t be infusing any equity in its joint venture in India. Vodafone chief executive officer Nick Read recently said, “We as a group try to provide them as much practical support as we can, but I want to make it very clear, we are not putting any additional equity into India.”
Birla offered to sell his 27 per cent in VI to the government, but the government’s ineptness in running telecom companies—in fact, all public sector enterprises and banks—inspires little confidence. The two state-run telecom majors, BSNL and MTNL, are already in ICU, surviving on a taxpayer-funded revival package.
The point is that the consequences of DoT’s obstinate persistence with AGR have been well known for quite some time. It was known even a few years ago that there was no way the government could ever recover the AGR payment from VI; and now, when the company is on the brink of death, the dues can’t obviously be recovered.
It is not that what was known to experts was not known to the government. Yet, nothing was done for the fear of being accused of a private company. Such are the perils of a toxic climate of opinion: business tycoons are portrayed as immoral profiteers. A government trying to help a company escape the ill effects of some wrong policy decision is sure to attract the charge of helping its business cronies. This is a political risk every leader is loath to take.
The consequences of the toxicity: about 10,000 VI employees may lose their jobs, apart from many more indirectly employed; banks, most of them in the public sector, will have higher non-performing assets or NPAs; a duopoly in the telecom sector; a bad press for the country as a destination for investment.
Just like the fate of VI, those who matter always knew the losses Air India, MTNL, BSNL, and a number of other state-run companies and banks would cause; but they took few corrective measures. They knew how bad retrospective taxation was, but persisted with it for nine years lest they be accused of pleasing big corporations. Ditto with other policies with debilitating consequences.
All this because public discourse and political debate remain poisoned with discredited socialist, anti-business ideas.
Views expressed above are the author’s own.
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