NEW DELHI: The Union government may have won the AGR case but it is likely to gain very little from the episode if Vodafone Idea (VIL) hangs up its boots.
In fact, a VIL default may add significantly to India’s fiscal deficit since the government will lose out on nearly Rs 90,000 crore in deferred spectrum asset debt owed by the company, analysts warn.
While a superficial perusal of the numbers may indicate significant gains for the government, experts note that such a scenario is very unlikely.
According to SBI Research economists, if the Department of Telecom (DoT) manages to collect Rs 1.2 lakh crore in adjusted gross revenue (AGR) dues by March 16, it will have narrowed its “fiscal deficit for the current fiscal year to 3.5 per cent” of GDP from the estimated 3.8 per cent.
Clarity will only emerge after the date of the next SC hearing on the matter on March 17, the added.
But, other analysts and industry executives say this is an extremely unlikely scenario. “First, many of those companies who owe significant dues are already undergoing insolvency (like Reliance Communications and Aircel),” noted a senior telecom executive requesting anonymity.
“Secondly, those who are still operational are likely to estimate dues at significantly lower levels than the DoT,” he added.
The greatest danger for the Union exchequer, however, lies in the very real possibility of a Vodafone Idea default and bankruptcy. The company paid Rs 2,500 crore to the DoT on Monday, promising another Rs 1,000 crore by the end of the week.
"The Board will take further stock of the situation to see how further additional payments can be made," the company said in a statement.
But these amounts are a far cry from the Rs 53,038 crore dues estimated by the DoT and analysts say the company is likely to have trouble coughing up even half of that corpus since its cash balance stands at just Rs 12,530 crore.
“VIL has gross debt of Rs 1.2 lakh crore, of which around Rs 90,000 crore is the government’s deferred spectrum debt, while around Rs 25,000 crore is bank debt. A default of such a large scale could increase India’s fiscal deficit by around 40 basis points (0.4%), having the deepest impact on government receipts... while creating ripples in the banking sector,” noted analysts at Motilal Oswal.
The brokerage also warned that apart from the direct impact on 13,500 employees and its 300 million customers, “the indirect impact on multiple vendors and other stakeholders could be even worse.”