SC order was illogical but govt never even explained the stakes to SC; it can lose Rs 2.2 lakh crore & banks Rs 50,000 cr.
While the Supreme Court order on AGR was poorly conceived – how can licenses fees be paid on non-telecom revenues? – the government must share an equally large part of the blame. If the orders sent to various PSUs on their dues – Gail earned Rs 35 crore in telecom revenues but was sent a bill of Rs 1.8 lakh crore! – were grossly incorrect and if the telcos were not asked to pay their dues after the SC rejected their petition, this is not a decision some junior official would have taken, it should logically have gone all the way to the top, indeed it should have been discussed by the Cabinet or a Group of Ministers.
Given that it was the government that wanted the larger definition of revenue to be accepted, it was clear it wasn’t going to challenge the SC ruling that went in its favour. But given the impact of the judgment, the very least the government needed to do was to spell out the implications and then suggest some alternatives; instead, it chose to play the role of a mostly silent spectator. Since no definitive ruling had been made on AGR till then – that is why the case was in the SC – at the very least the government should have suggested that only the principal amount be paid, not the penalties and the interest on it; the principal amount due after the AGR ruling is a small fraction that telcos have been asked to pay.
And apart from the fact that the judgment will most likely result in Vodafone-Idea shutting – there will then be a private sector duopoly left in telecom since it is unlikely BSNL-MTNL will be much competition – the government itself stands to lose a large part of the Rs 215,000 crore it is owed, and the Rs 49,000 cr it owes banks will also have to be largely written off. Asking the court to review its order and to allow the government to negotiate the final payment was hardly unreasonable since, in the insolvency courts, government-owned banks routinely take 40-60% cuts off the principal amount in the final resolution when companies are sold; if they didn’t, they would get nothing. And while the government allows a moratorium on payments for spectrum, after which the payment is made over a 10-year period, surely it needed to suggest this to the court?
Indeed, the government’s missteps on this issue took place a decade ago. Till 2010, India mostly gave out spectrum free and, to compensate for this, it charged telcos a license fee and a spectrum charge for this. When it started auctioning all spectrum after 2010 – and at very high prices due to a faulty process – it needed to scrap the license fee/spectrum charges; had it done so, today’s AGR judgment would have meant very large payouts.
The UPA was in power in 2010, but even the Modi government did precious little when it came to power in 2014. Indeed, it hasn’t even done this now. If these fees were scrapped, telcos would find it easier to pay the AGR dues since they would save on the annual license fee/spectrum charges.
The government still has the option of overruling the SC as it has done in the past; when the SC ruled against it in the Vodafone tax case, for instance, the government came up with its retrospective tax amendment. While this is an extreme step, given the government has done so little so far, it is unlikely it will go down this path. That’s bad news for the country’s investment climate, the government’s own coffers and the country’s banks.