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Note: A version of this piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here.
The most compelling argument made by the Narendra Modi government for privatising Air India was that it lost Rs 20 crore every day and this daily bleeding had to be stopped to unburden the tax payer. AI suffered a loss of over Rs 7,000 crore in 2020-21.
Note how the government is following exactly the opposite logic while recently agreeing to take a 35% stake in telecom company, Vodafone-Idea, which lost over Rs 120 crore a day in 2020-21 and had shown annual losses of Rs 46,000 crore!
So why is the government becoming the single largest shareholder in Vodafone-Idea which owes banks (tax payers) Rs 48,000 crore in loans and guarantees? Primarily because Vodafone-Idea additionally owes the Centre over Rs 1,50,000 crore as dues on account of spectrum payments and accumulated gross revenue share. The Modi government has chosen to convert the interest dues of Rs 16,000 crore owed by Vodafone-Idea into equity of the company at Rs 10 per share.
Vodafone-Idea’s share price has been stagnating for some years as it has been on the brink of bankruptcy with both its key promoters Vodafone UK and Birla declaring they cannot sustain the massive liabilities of the company owed to banks and government.
The question to ask is if global telecom giant Vodafone feels it can’t revive the company and has nearly stopped further investment in the company, why is the Modi government so keen to acquire the single largest share in Vodafone-Idea?
And then there is the broader conceptual question: If the government is resorting to privatisation with the specific aim of releasing scarce resources for much needed developmental projects, then why invest in such a dud company as Vodafone-Idea where the original promoters’ commitment is in doubt?
In fact, by a strange coincidence, the amount raised by the government from the sale of Air India is roughly the amount invested by it (Rs 16,000 crore) in the loss-making Vodafone-Idea. This totally defies logic of any kind.
If truth be told, the Modi government is actually being coerced into acquiring a big stake in Vodafone-Idea because most analysts feel the company has no future as the telecom sector has moved to a duopoly control of Reliance Jio and Bharti Airtel. Analysts believe it is only a matter of time before Vodafone dies a natural death. With 200 million active mobile subscribers, the company is deemed too big to fail and that is perhaps the reason why the government has chosen to take a stake in it. The telecom sector has been a graveyard of companies. Messy spectrum policy and tariff regulation has resulted in most mobile services companies dying a premature death. Even erstwhile public sector behemoths BSNL and MTNL have been run to the ground due to sheer neglect by both the UPA and NDA. Finally only three large players remained in the game and Vodafone was one of them and it had the largest subscriber base after it merged with Idea some years ago. However, its subscriber base collapsed after Reliance Jio started a price war in 2017.
All these years – especially after the entry of Reliance Jio in 2016 – the regulator allowed telecom tariffs to hit rock bottom and caused a virtual mayhem in the industry. Reliance Jio burnt massive cash to build a big subscriber base in double quick time. During this period the Vodafone global head kept complaining publicly that both policy and regulation were helping one player -Reliance Jio.
Jio, on its part, asserted that it was bringing about a data revolution by making it the cheapest anywhere in the world.
The industry in general began bleeding in the process. Now, data tariffs are being raised gradually after most players have fallen by the wayside. This was only expected as the recent 20% tariff hike has largely benefited the surviving duopoly of Jio and Airtel.
Vodafone-Idea is too deep in debt to benefit from tariff hikes now. It does not have enough cash to invest in the modernisation of its infrastructure. And finally the Indian tax paper has chosen to rescue it! Over a decade ago, Congress politician Jairam Ramesh had famously remarked, “before privatising the public sector we need to privatise the private sector”. The Modi government taking 35% stake in Vodafone is indeed proof of this syndrome.
The day the government announced it would take a 35% stake in Vodafone, the share price of the company fell 20%. The market clearly signalled its displeasure at what was going on.