The Supreme Court has now ordered the companies
to pay the government not just the dues but a hefty penalty -- as well interest on both. The total amount the companies
owe approaches $13 billion. Vodafone Idea
owes $4 billion of that, Bharti Airtel
around $3 billion.
The companies are supposed to pay up in three months, though it’s far from certain how that’s possible. They’re already snowed under with debt -- thanks, in large part, to the Indian state. Vodafone Idea’s debt in March 2019 was $14 billion; Airtel’s was over $15 billion. Some of that debt burden is thanks to the exorbitant amount they’ve already shelled out for spectrum. The government changed an earlier policy that subsidized spectrum to one involving auctions that would maximize the amount that it receives as revenue -- great news
for the drafters of the budget, bad news
for investment in the sector and overall growth.
It doesn’t help that the sector’s caught in a bruising price war thanks to a cash-rich new entrant: Reliance Jio Infocomm Ltd., which can call upon the massive war chest of petrochemicals major Reliance Industries Ltd. Jio’s two rivals have long accused it of receiving favorable regulatory decisions, such as one that allowed 4G spectrum that had been assigned for data to be used for voice services as well. Jio’s entrance into the market has been great news
for Indian consumers, who now get high-speed data at some of the lowest rates in the world. But it means that Jio’s already heavily burdened competitors may go under.
The government now says it will convene a panel of senior bureaucrats to consider how to ease financial stress among telecom companies. Yet, this comes after it’s attempted to squeeze every last rupee out of the sector to pay for spectrum, imposed adverse regulation and then appealed legal decisions all the way to the Supreme Court. Moreover, the government is also planning to spend $6 billion to revive moribund state-owned telecom companies and assign them 4G spectrum at an “administrative” cost. The price war will now include not just deep-pocketed Jio but the even deeper pockets of the Indian state.
There’s no point making the laissez-faire argument and shrugging one’s shoulders if Vodafone Idea
and Bharti Airtel shut down. It’s hard to see why any new investors would want to enter a market in which the playing field is so uneven. Besides, past investors have already been burnt by state action: Norway’s Telenor ASA, the UAE’s Emirates Telecommunications Group Co. PJSC and Russia’s Sistema PJSFC wrote off investments worth about $2.5 billion after the Supreme Court canceled licenses en masse a few years ago, following corruption allegations that have not been upheld by the courts.
Foreign investors will also note that they can’t even appeal to international arbitration anymore, since the Indian government unilaterally canceled the investment treaties that made that possible. Investment by existing operators into the new infrastructure that could power India’s future -- such as 5G -- looks unlikely in the near future.
India’s statist politicians seem to assume that every sector is a cash cow for their welfarism, and that foreign investors can’t quit India. They had better think again. Aviation has already been decimated by state action; it looks like telecom is next, in spite of the fact that it is the backbone of any realistic growth strategy for India. The government’s boasts about improving the ease of doing business in India, or of being a magnet for investment, ring awfully hollow given how hard politicians are making it for healthy, competitive markets to survive.