Policy Watch Episode – 279 : Govt sops for stressed telcos

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Policy Watch Episode – 279: Govt sops for stressed Telcos


 

The Inter-Ministerial Group (IMG) set up to address the financial stress in the telecom sector has prepared a draft report recommending steps to benefit the industry. Reports say that Finance Minister Mr. Arun Jaitley has reviewed the report extending the deferred payment schedule to 16 years, cut in interest rates and converting the Prime Lending Rate (PLR) to MCLR or the Marginal Cost of Funds based Lending Rate are among the measures being considered by IMG.

Analysis:

Some of the measures are necessary to be taken and much has to be done by the banks to protect their interest, otherwise, there is a huge risk of loans turning bad and the public-sector banks will not be able to recover.

It needs to be seen how much of this is due to the fault of telecom operators themselves and how much of this is because of the policy problems. In 1999, the then Vajpayee government bailed out all the telecom operators shifting them from a fixed license field to a revenue share arrangement and it was entirely the fault of telecom operators at that time that they got into a mess as they could not pay the exorbitant amount of license fees.

Telecom is not a sector in isolation but telecommunication is an infrastructure that has tremendous multiplier effects on the economy. It is a cost and time saver i.e. increasing business in less time. According to a study, 10% increase in mobile phone penetration (voice) can increase the GDP by about 1.5% and a 10% increase in broadband penetration can increase the GDP by almost 3%.

Present scenario is clearer than 1999 because some of the problems of the telecom sector are not due to the fault of the operators. It started with the Supreme Court judgement of 2012 cancelling 122 licenses and asking the operators to bid again for licenses. This put a huge stress on bank loans because some operators went out of business, many people lost their jobs and public-sector banks suffered negatively. Spectrum auction fees was very high for 3G. Apart from these factors, there was disruption due to Jio as well. Over 90% users in India are prepaid users who recharge on a daily basis or few days. They needed cash to recharge and that market got hit due to demonetization.

It is the responsibility of the regulator or the concerned authorities to clear the issues. Telecom companies also need to provide better facilities to the consumers such as addressing the issue of large number of call drops. Therefore, there is a need to:

  1. Safeguard interests of the consumers.
  2. Make policies in the right direction for better health of the industry.
  3. Stop other players in the market to take benefit from the loopholes prevalent in the system such as predatory pricing, free services etc.

Conclusion:

This sector is too important to fail because of the reversal of the digital divide, e-governance, m-governance and many other things dependent on the telcom sector every day. Whether the government will prepare a bailout package for the telecom industry remains to be seen because it will be given through taxpayer’s money. The distress in the sector is real and it should not be wished away in a hurry.