Here’s why the Government May Suffer if Vodafone Idea Fails

Reports reveal that the government may have to face grave consequences if Vodafone Idea fails. Owing to its outstanding dues of approximately Rs 1.6 lakh crore in AGR liability and deferred spectrum payments, the government may turn into the “biggest loser” if Vodafone Idea were to collapse.

Moreover, if the government’s outstanding due of Rs 23,000 crore owed to the banks is added to the mix, this failure may turn into what will be known as the biggest in corporate history. This is because nearly 65-70% of the loans are held forth by state-run lenders. The banks too have extended guarantees that are worth thousands of crores to Vodafone, which might add to the already lethal blow.

Considering this extremely fragile situation, many analysts have been expressing their concerns. “The telecom department and the national exchequer would lose the most in case of a collapse of Vodafone Idea. The picture looks grim considering the poor recoveries and unrealized outstanding after the collapse of Anil Ambani’s Reliance Communications and Aircel, where too several thousands of crores of rupees remain locked. Taxpayers stand to lose the most,” stated one of such analysts from a leading brokerage.

All in all, Vodafone is currently under a debt of Rs 1.8 lakh crore alongside the Rs 7,000 crore worth of financial losses it faced during the March quarter.

According to ICICI Securities, the debt totals over Rs 1.8 lakh crore. It stated, “We see the payment of liabilities coming soon, while fund availability remains a challenge.”

As per the data cumulated by various analysts and Vodafone Idea’s financial performance (Rs 107), the company continues to remain one with the lowest average revenue (Arpu) per user among its competitors.

Whereas Bharti Airtel reported Arpu of Rs 145 and Reliance at Rs 138. Although, Bharti Airtel has stated that at least Rs 200 Arpu is required to revive the capital-intensive sector.

Vodafone Idea’s substandard performance was evident when its promoters started giving out SOS calls. They also refused to make any further investments in the company, and have asked the government to support its existence, time and again.

Goldman Sachs stated that between December 2021 and April 2022, Vodafone Idea has about Rs 22,500 crore of dues inclusive of AGR, Spectrum, and Debt payable.

Why it’s Important to save Vodafone Idea?

If Vodafone Idea Limited fails, it will have a major impact on its existing staff, lenders, customers, and even the government. It will also turn the Indian telecom market into a duopoly, with only two leading private market players, i.e., Mukesh Ambani’s Reliance Jio, and Sunil Mittal’s Bharti Airtel.

Vodafone Idea’s absence will give rise to two devastating situations-

  • It will have a grave impact on the future of the Indian Telecom Industry.
  • It will discourage foreign investors from investing in the telecom sector.

Eventually, these situations would further negatively affect the future digital endeavours of the country.

In addition to this, VIL’s bankruptcy could also engender an “immediate crisis” for the government and the lenders.

Given the fact that VIL owes a huge sum to not only the government but also the lenders, it has become the need of the hour to save the telecom firm from faltering.

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