Telecom, one of the fastest-growing sectors of yesteryears with the ability to add at least two lakh jobs a year, is today in a shambles. The situation is due to a combination of regulatory pressures, high-cost structures and a vicious rate war that has left behind just three survivor firms in the fray.
A recent Supreme Court judgment upholding the calculations of tax authorities, who are under pressure to increase revenue collection, means that telecom companies led by two of the largest ones will have to shell out some Rs 92,640 crore within three months as back taxes. On top of this, they may, as a result of this judgment, also have to cough up another Rs 41,000 crore to the government on account of enhanced calculation of spectrum charges.
The innovations of these firms along with the two state-run entities—BSNL and MTNL—have seen India building up the world’s second-largest telecom network. Due to the rate war unleashed on them by a new rival, India has among the lowest tariffs globally. At the same time, high spectrum charges levied by a government keen to gouge out as much money as possible from the sector has meant that they pay the most globally for radio waves.
This combination is not exactly a financially healthy one at the best of times. And now, these firms face not just an uphill task but also a three-legged race to the bottom. This huge demand may well mean pushing one or both of these firms to their death throes—a situation which would certainly not be to the benefit of the Indian telecom customer. The government is naturally alarmed and has set up a committee of secretaries to take stock of the situation. But given the speed at which India’s bureaucracy functions, there are question marks over whether a relief would be worked out in time.
The sector has a debt of over Rs 3 lakh crore. Pushing these two firms towards bankruptcy would mean not only that our banking system would be saddled with another mountain of unpaid debt, but also that tens of thousands of people would risk losing their jobs—not only in these firms but in the whole ecosystem of suppliers who depend on them.