Killing the goose that laid golden eggs

J Mulraj | Updated on February 23, 2020 Published on February 23, 2020

When the economy was opened up after the 1991 crisis, a few sectors did remarkably well and were thought of as ‘sunrise sectors’. Several private sector players emerged in fields such as telecom (Bharti Airtel, Vodafone, etc), civil aviation (Kingfisher, Jet, Modi Luft, Sahara, etc), Private sector banks (Kotak, YES, IndusInd, etc) and power.

Their stories did not end well, and a lot of it is due to the unequal playing field. Thus in civil aviation, Government-owned airline Air India has consistently made losses, but is still standing because tax payer money is used to fund it. Its competitors do not have such largesse bestowed on them, and have to pay a cost to raise funds. So, airlines such as Kingfisher and Jet, which had good service, went bankrupt.

The same story in banks, in which Government-owned/ controlled banks get periodic infusions of equity to make up for losses often caused by crony loans; private banks have to raise such funds at a price. In telecom, the Government announced a ₹69,000-crore package to allow BSNL/MTNL to offer early retirement and to buy spectrum; private companies do not get such largesse.

All these erstwhile ‘sun rise’ sectors were the golden geese, providing impetus to GDP growth and a steady revenue stream to the Government.

Well, one more of these geese is being killed in the belief that, in its death throes, it will expunge lots of golden eggs (revenue for Government), but will actually do more harm. The unfolding story is a Kafkaesque concatenation of tragic events.

This is the telecom sector.

When the Government first introduced mobile telephony in India in 1995, it committed the same error as European governments had committed, in its roll-out. Like them, India’s Government, too, saw telecom spectrum as a scarce resource which needed to be auctioned at the highest price, to earn revenue for it. Just as in Europe, this strategy failed and had to be amended. It failed because the high licence fees bid in the auction led to unaffordable telephony rates of ₹16/minute, paid by both caller and receiver!

The sector was heading to a premature death, just as in Europe. The telecom operators then suggested a revenue share instead of a licence fee, which was agreed. The current dispute revolves around what constitutes ‘revenue’ and the Government definition of ‘gross adjusted revenue’ includes all income, whether from providing telecom services or not.

Costly, collateral damage

The dispute over interpretation ended in court, and the Supreme Court finally decided against the telcos. Meanwhile, Department of Telecom (DoT) added penalty and interest to the delayed payment and slapped a bill which will result, as stated by Vodafone-Idea, in a liquidation of the company. Besides killing the goose, and not getting its golden eggs, there will be huge and costly, collateral damage.

Vodafone Idea has over 30 crore subscribers. Porting them to two or three (including BSNL) survivors will take months, as there is a capacity limit to porting. So customers might be without connectivity for quite a while. All mobile customers will also see a hike in call/data rates for surviving telcos to be able to recoup the amounts paid.

Banks which have lent to Vodafone Idea would face an NPA issue.

The really Kafkaesque part of the story is that if the same logic of levying charges on all income, not only from telephone services, then public sector companies such as GAIL will be charged for its revenue from transporting gas, Power Grid from transmitting power and Railways from transporting passengers and freight, since all have spectrum. DoT, eg, asked GAIL to pay ₹1.83-lakh crore!! So, the Government is differentiating them saying that their core business is not telephony, hence they are exempt from paying a revenue share on AGR basis.

The problem would not have reached this stage had the Government/DoT clarified earlier, as it ought to have, that AGR would be computed only on revenue from providing telecom services. In India problems are allowed to fester through indecision, until they become of an unmanageable size.

This mess has two other serious collateral damage consequences. One, our telephone companies will be ill prepared for 5G telephony, a key component for the coming Fourth Industrial Revolution. They won’t have funds required to invest in telecom towers; these are different for 5G than for 4G.

Secondly, an exit by Vodafone would seriously dent India’s attempt to improve its ease of doing business ranking, to attract more FDI.

Wealth creation

At the very root of the malaise of destroying our established industries is the attitude towards wealth creation, which is looked upon with suspicion. In a brilliant lecture at HL College in Ahmedabad, Sanjeev Sanyal, Principal Economic Advisor, Finance Ministry, pointed to a time in India’s glorious past, when creation of wealth was not frowned upon, allowing it to be a leader in global trade and economic growth.

The FM mentioned in her Budget speech that the Government welcomes wealth creation. Let’s judge this from the actions to be taken to solve the telecom imbroglio, which should never have reached this stage.

Should the attitude change, India will achieve the target of $5-trillion economy. Else, we may end up as an also-ran.

The writer is India Head — Finance, Asia/Haymarket. The views are personal.

Published on February 23, 2020
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