May 31, 2023

How Will The Government Settle The ADR Issue Of The Telcos?

By Linus Garg
First publised on 2020-02-18 12:34:22

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Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

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Should the government provide relief to the beleaguered telecom companies? There is no doubt that the said companies had signed a faulty contract with the government which included "other income" (in addition to their core income from telecom operations for which the licence was issued to them) in the adjusted gross receipts (ADR). This has now become the bane of the contention with the Supreme Court obviously going by the letter of the law and the government seeking to enforce the contract as it was signed. But to any layman, the share the government can rightly claim from the telecom companies should only be for the telecom operations they undertook as the government issued the licence to them for those operations only.

But is the matter as simple as that? Let us suppose that a telecom company earned an x amount from its consumers for providing telecom services. It invested that amount and earned y amount as interest on it. The government can rightly claim that y was earned only because of x and it should be part of ADR. That is what the telcos signed up for, that is what the government now wants to enforce and that is exactly what the Supreme Court has said is right. The whole matter boils down to the initial contract which, despite highly-paid lawyers representing the telcos, did not clearly specify which incomes would form the part of ADR.

But if the telcos are made to pay what the government is demanding, they will suffer a huge blow and their operations will become unsustainable without increasing usage charges abnormally. Vodafone-Idea has said that if no relief was provided both through reducing the amount and allowing deferred payments, it might close its operations in India. That would mean that the telecom sector would have a duopoly in Airtel and Jio and that would be damaging for consumers. But the government cannot provide relief only to Vodafone. And with the Supreme Court breathing down its neck, the government will have to think out of the box to provide any relief to the telcos as it would not like to contravene the court's orders.

There is also the question of banks taking a huge hit if Vodafone closes down and defaults on the loans it has taken. That will have a huge effect on the economy too. Then there is the question of India’s image as a business destination taking a hit. In the absence of clear laws and their just application (although in the instant case the application is perfect according to the letter of the law), foreign investors would think twice before making commitments in India. A business such as Vodafone closing shop would damage India’s reputation in a huge way, the reasons notwithstanding.

The government will have to come up with a solution before the next hearing in the Supreme Court on March 17 and convince the court of its fairness and efficacy. The court will also need to be convinced how the relief plan would not result in a loss of revenue for the nation. The issue has blown up at the wrong time with the economy not showing any signs of improving and the cash-strapped government looking for ways to augment its revenues in the face of falling tax collections. It seems that the worst is likely to happen despite everyone wishing to have an amicable settlement.