End of retrospective taxation may revive Vodafone Idea
An obnoxious law that from the start was a regressive and job-killing idea is now repealed.
The resignation of Kumar Mangalam Birla as nonexecutive director and nonexecutive chairman of the Vodafone Idea board is the direct consequence of a major policy malady—maximization of government revenue. It seems, however, that the Centre has decided to mitigate the worst effects of this malady; its decision to bury retrospective taxation suggests that.
Till that was announced on Thursday, it appeared that there would be a lot of deplorable consequences if something major was not done—death of the telecom major, emergence of a duopoly, massive job losses, as well as huge haircuts by the lenders concerned. All this because of the perverse persistence with temporarily filling up the public exchequer by any means.
At the heart of Vodafone Idea’s troubles is the adjusted gross revenue (AGR), a feesharing mechanism between the government and telecom companies. The latter are supposed to share a part of AGR with the government. What constitutes AGR remained a point of contention between the telcos and the government, leading to a legal battle for over a decade. The government contended that AGR must include all revenues from both telecom and non-telecom services, while the companies maintained that AGR should pertain to only core services.
The Supreme Court’s verdict in 2019 went against the telcos burdening them with over Rs 1 lakh crore. The worst hit were Vodafone Idea and Airtel. Vodafone Idea’s AGR dues are more than Rs 50,000 crore. Last month, they received another blow as the apex court refused the re-computation of AGR dues.
The two telcos’ main problem, however, has not been the SC but the Department of Telecommunication (DOT). As a typical sarkari body, it seems to be completely focused on direct revenue maximization—that is, what it receives. A look at its mandate will prove this.
Dot’s website describes its mission as: “To develop a robust and secure state-ofthe-art telecommunication network providing seamless coverage with special focus on rural and remote areas for bridging the digital divide and thereby facilitate socioeconomic development; create an inclusive knowledge society through proliferation of affordable and highquality broadband services across the nation; reposition the mobile device as an instrument of socio-economic empowerment of citizens; make India a global hub for telecom equipment manufacturing; promote development of new standards to meet national requirements; attract investment, both domestic and foreign and promote creation of jobs.”
Had it been true to its mission, it would have let private players flourish. Actually, they were flourishing not long ago as telecom was one of the happening sectors, growing impressively, attracting investment, generating employment, and contributing to the exchequer. Private enterprise fulfilled much of Dot’s mandate: seamless coverage, reaching rural and remote areas for bridging the digital divide; taking the internet everywhere, for everybody, the rich as well as the poor; repositioning the mobile device for socio-economic empowerment of citizens.
Dot’s role, meanwhile, has been negative. The oncebooming telecom sector is now in a bad shape. The combined lending is somewhere between Rs 4.5 lakh crore to Rs 5 lakh crore. The two major state-run companies, MTNL and BSNL, are sick, forcing the government to approve a package worth Rs 70,000 crore, all taxpayer money, to revive them. There are few signs of revival till date.
Against this backdrop, Birla’s offer to sell his 27% stake in the debt-ridden Vodafone Idea is hardly realistic. He recently wrote to Cabinet Secretary Rajiv Gauba: “I am more than willing to hand over my stake in the company to any entity—public sector/ government/domestic financial entity—that the Government may consider worthy of keeping the company going.”
Birla’s partner in the venture, Vodafone Group Plc, is also not interested in infusing any fresh equity infusion in its joint venture in India. Vodafone chief executive officer Nick Read recently said, “We as a group try to provide them as much practical support as we can, but I want to make it very clear, we are not putting any additional equity into India.”
If Vodafone Idea dies as a company, it will not just lead to a duopoly—an unpleasant condition in any sector—but also end more than 13,500 jobs. And that is just direct jobs.
Our banks, most of them in the public sector, will also be adversely affected. As it is, bad debts are a big problem for them.
The government’s decision to discard retrospective taxation hints at its seriousness to address some urgent economic issues. This cancels about Rs 22,000 crore of Vodafone Group Plc’s liabilities. This may nudge it to rethink about its no-equity-infusion decision. One hopes that Vodafone Idea weathers the storm. This would be the immediate result of a good policy measure—repeal of an obnoxious law that from the start was a regressive and job-killing idea
Ravi Shanker Kapoor is a freelance journalist.