Stake in Voda-Idea:It’s complicated

It is no big surprise that the central government has now become the largest shareholder in one of the country’s three major private telecom majors, Vodafone-Idea (V-I). The company did not have any good option other than offering the stake to the government, and the government could not but accept it. The company is weighed down by a debt of about Rs 2 lakh crore by way of interest on the deferred payments for spectrum and adjusted gross revenue. As it could not even think of repaying the debt, it went for the option of converting it into equity. The government now owns a 35.8% stake in V-I. The company has said this does not amount to giving management control to the government and that the government would not interfere in its operations. But the news led to a run on the company’s shares in the market.

The government was in a difficult situation because it could not allow the company to collapse and leave the telecom market to a duopoly of Reliance Jio and Airtel. Its own share in the market with BSNL and MTNL is quite low. Neither Vodafone India nor the Birlas, who held VI as a joint venture, wants to spend more on the company through capital infusion. No outsider will bring any capital into VI in that situation. India’s telecom sector, which was once very attractive and had grown fast, is no longer so alluring for various reasons. But it is important that the sector, which has a crucial role in the economy and the lives of people, recovers and becomes healthy. The moot question is whether VI’s decision will help the sector to move in that direction.

But the government should consider its rescue act as a stop-gap arrangement. It has been stated that it does not amount to nationalisation. The government is, in fact, trying to sell its stake in many companies. It is also clear that it cannot efficiently manage a telecom company, or any company, going by its track record, especially when there is a conflict of interest. The company is no longer looking into an abyss now, and is in a position to plan and work for recovery. It should be able to invest in new technologies, improve network quality, and take steps to expand its customer base. Once the finances improve and VI establishes itself on a better footing, the government should exit it. Salvaging a private company with taxpayers’ money is not a good precedent. The government should ensure that its multiple presences – in V-I and through BSNL/MTNL — does not complicate the working of the telecom sector.