Given Aircel owes the government Rs 12,389 crore by way of AGR dues, the NCLAT ruling that its spectrum can’t be transferred—without that, the insolvency approach will grind to a halt—is a massive victory for the government. Indeed, the exact same principle will also apply to RCom that is also in the insolvency courts and owes the government more than double at Rs 25,199 crore of AGR dues.
But this victory, assuming the Supreme Court upholds the NCLAT ruling—the NCLAT ruling itself reversed the NCLT ruling on the issue—is at most effective a pyrrhic one. Both Aircel and RCom, preserve in thoughts, owe PSU banks a lot of income, so if there is no resolution, the government is losing income, even although indirectly. Aircel owes banks and other lenders Rs 58,670 crore although RCom owes Rs 40,000 crore.
And although it is correct that the NCLAT ruling guarantees the government can continue to show Rs 12,389 crore of dues from Aircel on its books, this is not even worth the paper it is written on considering that, till there is some resolution at the insolvency courts, the government is not going to get one paisa of the dues. It is like the tax dues of more than Rs 12 lakh crore that the government shows just about every year in the price range documents most of it, the taxman admits, is fairly a lot uncollectable.
And, to the extent the banks can not recoup their loans—or some portion of them by way of the insolvency process—they are going to be that significantly less keen to lend to telecom corporations on the strength of their spectrum holdings. Indeed, it was simply because banks needed some surety although lending that, in the previous, the government had come up with tripartite agreements among it, the banks and the telcos on the spectrum.
While that tripartite agreement nonetheless remains and the banks can use it as a lien, it is of tiny use if, after there is a default, the banks are not totally free to just auction off the spectrum to a further bidder. Indeed, the government would also advantage if this was permitted to come about simply because, if the spectrum was utilized by a further telco, the government would at least earn licence charge and spectrum charges on this based on the income the purchaser-telco earned from the spectrum just about every year. Indeed, to the extent banks are reluctant to fund telcos, the government loses once more simply because its revenues from the industry—both from spectrum sales as effectively as annual licence charge/spectrum charges—are dependent upon the market getting capable to invest more to develop.
While the Supreme Court will, ultimately, take a get in touch with on whether or not the NCLAT view on the sale of spectrum is a valid one, what is incredible is that the government’s position continues to be what it is. As lengthy as the position is that the banks do not have the suitable to sell the spectrum, it reduces their need to lend against it. And just about every day that the spectrum lies unused is a dead loss for the government and the economy. Also, if the telcos do not personal the spectrum right after the auction, why are they paying so a lot income for it?
Sadly, the government refusing to do the suitable issue in telecom is, effectively, old policy! The dispute more than what comprises AGR is decades old, so alternatively of letting it bounce from one court to a further, the government necessary to sit down with market and settle the definition after and for all. Instead, it was permitted to fester. How a lot harm not taking a choice is causing can be gauged from the truth that, of the Rs 168,000 crore of AGR dues, interest and penalties add up to Rs 126,000 crore.
Similarly, regardless of the government most likely to drop a significant portion of the Rs 37,588 crore that Aircel and RCom owe it on account of AGR and also the Rs 58,254 crore that Vodafone Idea owes it had been the latter to shut—not totally not possible provided its precarious monetary position—it nonetheless hasn’t taken a choice on deferred spectrum charges and the amounts there are even bigger. In the previous, to make sure that telcos had been capable to bid for the ridiculously high-priced spectrum, the government came out with a bit of a fudge it permitted the spectrum to be paid for in 10 annual instalments right after a fixed upfront quantity, thereby creating the spectrum look more inexpensive.
While that permitted the government to get more purchasers, what it also did was tie the government’s fortunes with these of the market. So, when Vodafone Idea owes the government Rs 61,671 crore on account of deferred spectrum costs—in NPV terms, not the total added more than the years in which payments are due—it shutting down exposes the government to big losses as effectively. Ideally, deferred charges need to be discontinued, but they will not so, the deferred dues will preserve increasing till, one day, like the AGR dues, they as well will turn into uncollectable.
Postscript: The flipside of the government’s fortunes having tied to these of the market is that choices like scrapping each licence charge and spectrum charges need to have been taken a lengthy time ago as that would enable the market that remains in precarious shape considering that it owes the government Rs 260,000 crore. That this hasn’t occurred underscores how government policy continues to stay paralysed and unresponsive.