No bailout package for telecom industry in season of reforms

Ahead of 2019 polls, govt focuses on several big-ticket reforms

Financial stress in promising sectors, especially telecom, has come into prominence at a time when the Narendra Modi government is drawing up a long list of reforms, including mega bank mergers. The government is looking at this year as the last window of opportunity to roll out reforms before the ruling Bharatiya Janata Party (BJP) goes into election mode, a top bureaucrat told Business Standard.

While the telecom industry’s debt of over Rs 4.5 lakh crore and declining profits of big companies have prompted the government to sit up, it is learnt that there would be no policy intervention or bailout package for the sector. 

The Department of Telecommunications (DoT) and the Telecom Regulatory Authority of India (Trai) have lined up meetings with the promoters of telcos, but sources said the government would have a hands-off approach. Among other things, a section in the industry sought a stretched out re-payment term from the government for spectrum purchased in recent auctions. “No such move is being planned,” an official in the know said, adding the telecom sector had faced crisis earlier too but managed to recover. 

While telecom firms were already reeling under heavy debt because of the high price of spectrum, latest entrant Reliance Jio stepped up competition in the sector by what rivals call “predatory pricing”. 

Besides deferred payment for spectrum, telecom companies are asking for reduction of both spectrum usage charge and licence fee. Redefinition of adjusted gross revenue (AGR), an issue pending with the Supreme Court, is also on the wish list of the industry.

Pharmaceuticals, another sector where the biggest companies have taken a hit on profits due to competition in the generic space in the US, the biggest export market for Indian drug firms, the government has not planned any policy intervention yet to offer relief to the sector.     

Steel is among the stressed sectors to see policy intervention from the government recently. In fact, when the Cabinet cleared the Ordinance to amend the Banking Regulation Act to resolve non-performing assets (NPAs), steel sector bad loans comprised 28% of the total NPAs of banks.     

While wanting Trai and the Telecom Commission to ensure stability in the high-profile industry, the government is focused on several big-ticket reforms during the current financial year, ahead of the 2019 Lok Sabha elections. The merger of banks -- like associates of State Bank of India (SBI) merging with the parent bank recently -- is top of the list, and an announcement is likely soon, an official said. 

Also in the top list is the oil sector merger. State-owned Oil and Natural Gas Corp (ONGC) is likely to acquire HPCL, the third-largest fuel retailer, at an estimated deal size of Rs 42,000 crore. 

          

Although the government has no clear plan on job creation, it wants to showcase labour reforms as part of its achievements. According to officials, all states would be encouraged to replicate steps taken by some, including Rajasthan, Maharashtra and Madhya Pradesh. The BJP-ruled states are expected to take a lead in this. The Rajasthan government relaxed the provisions of the Factories Act, the Industrial Disputes Act, the Apprentices Act, and the Contract Labour Act. Madhya Pradesh amended around 20 labour laws.

The government wants to act fast on divestment of government stake in Air India but is still weighing the modalities, according to a senior official. How to monetise the assets it has, whether to include or exclude the assets in the sale, should the encumbrances such as the losses be part of the privatisation deal, will foreign shares be allowed—the government is trying to find answers to these tricky questions. 

     

Changing the financial year to January-December cycle is yet another ambitious project of Prime Minister Narendra Modi. However, a change from January 2018 will mean the presentation of Union Budget in October 2017. That may be too close to the July roll-out of the goods and services tax (GST). Too many disruptions together may not be a good idea, officials indicated, but as an idea it’s a winner in the NDA government.     

Holding simultaneous polls — Lok Sabha elections along with state polls — is among the reforms being debated actively in the government, and there may be action on this front soon.

On employment generation, an election plank for the BJP in 2014, officials argued there has to be investment to create jobs. Since public sector investments would primarily imply jobs in infrastructure, the government wants the private sector investment to grow in other areas. For that, it’s essential for interest rates to come down, a call that the Reserve Bank of India (RBI) has to take, a top official said.