Funding leeway for telcos

The Reserve Bank of India has approved a proposal to allow mobile phone companies to mortgage airwaves. The move will allow telcos to use spectrum as collateral to raise funds from banks for the forthcoming auctions.

The RBI has made an appropriate move given the current environment.

Telcos would need to shell out thousands of crores of rupees to obtain spectrum if the reserve price of airwaves suggested by TRAI (Telecom Regulatory Authority of India) is accepted by the empowered group of ministers.

Currently, the balance sheets of telcos are significantly leveraged, and most assets are offered as security for raising funds for expansion, 3G spectrum, and 3G network rollout.

With the increasing price of spectrum, the RBI’s move would allow telcos to leverage their balance sheet further, obtain additional spectrum, and reduce cost of borrowing (as secured loans are cheaper than unsecured loans).

While this is helpful from a funding perspective, it would greatly strain an already cash-strapped industry, and further affect the thin margins of telcos.

Audit of water resources and use

India is facing severe degradation of water in terms of quantity and quality.

30 per cent of the rural population lacks access to drinking water;

Almost two million children die each year because of inadequate water supply;

Sewage alone is responsible for 80 per cent of total water pollution.

These problems will be aggravated if the monsoon fails once or twice more. Further, if this situation is neglected, it will result in a vicious cycle of food insecurity, farmer suicides, water-borne diseases, industrial failure, and thereby cause a disruption in environmental equilibrium.

We need a comprehensive approach to water management — starting with auditing available resources and their consumption. We also need strategies to sustain and regenerate our resources — traditional practices such as rainwater harvesting and digging of wells have disappeared in most towns and cities in the name of development. Landmark initiatives, such as Gujarat’s canal-top solar power plant that saves 2 billion litres of water annually, should be encouraged in all States. Immediate action is needed to combat severe water shortages in times of drought.

Ratings shadow over Indian economy

Recently, US rating agency Standard and Poor’s released a report that warned India was at risk of losing its investment-grade rating.

According to the rating agency, a downgrade would mean India is unable to pay its debt. In other words, it would be difficult for companies to raise money abroad. This could negatively impact stock markets as many institutional investors, such as pension funds, use these ratings as a broad indicator for entry. Their rules allow them to invest only in an investment-grade country. Losing the rating will cause equity funds to flow out, and a downward spiral that will take time to reverse.

Companies may have to revisit their financing strategies, and revise future business plans. This could lead to additional costs, and hence companies should do a sensitivity analysis before making any decisions.

The report only reiterates the factual position — but then again, why do we need an external agency to tell us that we are in bad shape?

Need for National Ostrich Index !

India’s economic growth has been in a free fall lately. After the anaemic 5.3 per cent growth during the fourth quarter, the full-year growth for 2011-12 was down at 6.5 per cent.

Even the most optimistic estimate sees growth for the current year unchanged from last year’s growth of 6.5 per cent. The global economic slowdown, the Euro crisis, the lack of political focus on governance, deadlock in policymaking, and ambiguity on reforms among other causes have contributed to a decline in growth rate.

Companies need to rethink their investment strategies, as there could be pressure on margins, lower order bookings, and reduction in payback period.

The paradox is that there are several things to be done in the country for education, infrastructure, retail, and banking, which offer opportunities for growth worth trillions of dollars — yet, we are facing a downturn. Perhaps we should have a National Ostrich Index — one that measures inability to see and deal with reality!

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