Indian telecoms owe around Rs 1,85,000 crore to Indian and foreign banks. Where would the funds to repay these debts come from?

In its latest decision to relax foreign direct investment limits (FDI) across sectors, the Government has allowed 100 per cent foreign investment (up from the previous 74 per cent) in the telecom sector. While this could be a step towards controlling the rupee’s down-slide and reviving the economy, the question is whether it will help resolve the above-mentioned problem. This is a first step that will help foreign telecom companies in India bring in cash to support their operations and simplify their structure, which will ease operational management. However, to attract an influx of funds into the sector, we need:

Clear and stable policy framework;

Clear M&A guidelines;

Clear guidelines/ policy on spectrum re-farming, sharing, pricing and so on;

Clear and transparent taxation policy.

Forex blow to balance sheets

The rupee has been on a downward trajectory for a couple of months, and recently hit an all-time low of Rs 61.21 against the dollar.

According to a recent study by CRISIL, of the $200 billion foreign currency debt of Indian companies, 45 per cent is short-term. Even the blue-chip Nifty companies (excluding those in the banking and financial services space) have 40 per cent of their debt in foreign currency. These companies, which borrowed from abroad to take advantage of lower interest rates, will have to bear the burden of increased interest payments, marked-to-market losses and payment for rollover of hedged positions on their loans.

Through its announcement in December 2011, the Ministry of Corporate Affairs allowed capitalisation of foreign exchange losses until March 2020 to avoid the distorted picture of the financial statements. The question is whether this move will add to the intrinsic value of assets.

Serving up food security to the needy

The National Food Security Bill, 2013, was promulgated recently through an ordinance. Although this intends to ensure access to adequate quantity of quality food at affordable prices, there are several issues to be dealt with.

Effectiveness of Public Distribution System (PDS): The Comptroller and Auditor General’s (CAG) report for 2006 – 2012 points to a lack of real demand, overestimation by the Central Government while making allocations, and inadequate storage capacities. The Planning Commission has identified that for every Rs 4 spent on the PDS, only Rs 1 reaches the poor. The 2012 Global Hunger Index, published by the International Food Policy Research Institute (IFPRI), ranks India as 65, indicating the ineffectiveness of these schemes.

Wastage: Inadequate storage has resulted in rotting of food. The Government had earlier admitted to a loss of wheat worth Rs 5 crore, and rice worth Rs 40 crore, over the last five years. This would have been sufficient to feed 2.5 lakh people a year.

Quality: The CAG’s report has indicated absence of quality check at the time of procurement — the recent mid-day meal tragedies highlight this.

When there is no accountability for quantity and quality in the current distribution process, it is doubtful whether future process with additional burden and inclusion of direct cash transfer will be foolproof.

— Deloitte

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