How Vodafone-Idea's potential exit could send shockwaves through Indian economy

New Delhi, Feb 18: Cash-strapped Vodafone Idea is staring at bankruptcy as it struggles to clear Adjusted Gross Revenue (AGR) dues. The Supreme Court on Monday refused to hear a plea by the telecom company seeking more time to pay off AGR dues.

The telecom major made a part payment of Rs 2,500 crore towards AGR dues and promised to make another Rs 1,000 crore by Friday.

Despite submission, the apex court rejected the plea and made room for the Department of Telecommunication (DoT) to take coercive action including encashment of the bank guarantees.

The top court order could help Airtel and Reliance Jio as India will be left with just two telecom providers, but its bankruptcy could have a greater negative impact on the Indian economy.

Multifold impact on Indian economy

With the $3.9 billion owes, the Vodafone Idea's exit would could increase India's fiscal deficit by about 40 basis points.

A 40 basis point increase in fiscal deficit roughly translates to a revenue loss of about 1 trillion rupees ($14.01 billion) for Prime Minister Narendra Modi's government, when it is facing the country's first fall in direct taxes in decades, reports Reuters.

The shutdown could also dampen interest in an auction of 5G airwaves expected before the end of March.

With 13,000 direct employees life at stake, the Modi government already in dock for failing to create jobs, will have to face tough consequences in a country where about one million job seekers enter the market every month.

The Vodafone-Idea total liability is estimated to be around Rs 53,038 crore including Rs 24,729 crore in spectrum dues and Rs 28,309 crore in licence fees.

The telecom operators gross debt, excluding lease liabilities, was Rs 1,15,850 crore as on December 31, 2019.

Birla's Idea Cellular and British telecom giant Vodafone plc's India unit had merged last year to compete with the onslaught of free voice calling and dirt cheap data unleashed by richest Indian Mukesh Ambani's Reliance Jio.

Market leader Bharti Airtel, Vodafone Idea and other telecom players have to pay as much as Rs 1.47 lakh crore in payment of telecom license fee and spectrum usage charge together with interest and penalty for past 14 years.