FinMin prepares to bail out debt-ridden telcos by easing payment obligations
For telecom companies squeezed by falling margins and rising debt, there is light at the end of the tunnel.
As part of a relief package, the finance ministry is considering relaxing some of their payment obligations, on the logic that a robust sector is good for government finances as well.
According to an official who spoke on condition of anonymity, if the industry is in a bad shape, the government will anyway not get its dues, whereas if relief measures take telcos to a stronger footing, their interest in future spectrum auctions will go up given the ongoing digital transformation in the economy.
Telcos in India start paying for spectrum two years after the auction, and pay over eight years, along with interest. The companies have been demanding to double this to 16 years, and shift to marginal cost of funds based lending rate (MCLR) on interest payments. MCLR is a new system of interest rate computation introduced by the RBI from April 2016 to reflect the latest cost of funds. The government is in favour of both proposals, the official cited above said, asking not to be identified. Other contours of the relief package are yet to be finalised.
The ministry has assessed that rescheduling spectrum payment dues and interest will not hurt the exchequer, but it could fetch more by way of non-tax revenue in future.
“Industry is part of the government’s clientele. If a sector is showing signs of stress, we cannot look the other way,” said the official cited earlier.
The finance ministry’s inclination to give relief comes in the
THE GOVT COLLECTED 20% LESS THAN ITS TARGETED NONTAX REVENUE FROM THE SECTOR IN 201617 AT ₹78,715 CRORE. FOR 201718, IT IS PEGGED AT ₹44,342 CRORE
wake of tepid response to the last spectrum auction in October, in which some of the bands received no bids. Accordingly, the government collected 20% less than its targeted non-tax revenue from the sector in 2016-17 at ₹78,715 crore. For 2017-18, the ministry has conservatively estimated its receipts from the sector at ₹44,342 crore.
Easier payment options found favour with the government as it does not want the problem of bad debts of about ₹9.6 lakh crore in the economy to worsen on account of the telecom sector.
Concerns over loans to telcos have been rising for a while. On April 18, the Reserve Bank of India advised banks to set aside higher provisions even for good loans in stressed sectors, specifically telecom. On June 2, Times of India reported that State Bank of India has written to the telecom secretary pointing out the “highly unsustainable levels” of debt in telecom sector.
According to an industry executive, who spoke on condition of anonymity, re-scheduling spectrum payments and changing interest computation will give industry a benefit of ₹75,000 crore of cash flow over the revised payment period of 18 years.
The government official quoted above said that since only a part of the deferred payment is accounted for in the annual nontax revenue estimate, it will not hurt the exchequer.
Telecom firms are loaded with debt—around ₹4.85 lakh crore at the end of December 2016—and owe close to ₹3 lakh crore in spectrum payment charges, according to industry estimates.