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How India’s politicians, bureaucrats and judges treat telecom sector as their piggy bank

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Govt’s attempt to profit from a possible merger between Vodafone & Idea is a conspicuous example.

Something about India’s telecom sector attracts its grasping state like a bee to honey. Most companies in the space have already been taxed, regulated, fined, licensed or just plain expropriated half to death. Yet that hasn’t stopped India’s bureaucrats, or its politicians, or even its judges. Ignoring the fact that telecom growth pulled the Indian economy towards double-digit growth back in the barely-remembered boom years of a decade ago, they seem to see the sector now less as an economic engine and more as a piggy bank.

QuicktakeIndia’s Aspirations

The most egregious recent example is the government’s attempt to profit off a possible merger between two of the biggest remaining telecom companies — Vodafone India Ltd. and Idea Cellular Ltd. The merger — which was supposed to have been completed last month — would create India’s largest mobile services company, and the world’s second-largest after China Mobile Ltd. Almost a year ago, India’s competition commission said the two firms could go ahead. Most analysts viewed the merger as a way for Vodafone to edge quietly out of India after years of disappointment.

The deal hasn’t gone through yet, however, because the government department in charge of squeezing — I mean, overseeing the sector — has been holding things up. It’s approved the merger only on the condition that the companies pay the government $1.1 billion they claim is owed partly as payment for administratively assigned spectrum in the past.

Fine, you think — except a large part of that claim is, in fact, being contested by the two companies in court. India’s Department of Telecommunications, many suspect, is trying an end run around the judicial process, since it’s lost similar cases before: “You want my permission for this merger? OK, then stop fighting my demands for cash.” Calling this highway robbery “approval” of the merger is pure Newspeak. While Vodafone has publicly declared itself “happy” to receive permission for the merger, it’s generally believed that the company will challenge the demand in court.

Connoisseurs of Indian bureaucratic obstructionism will recognize that it has entered a new and fascinating phase. Once, the government said “no” just for the sheer joy of it. Now it has deeper, more complex motives.

First, the government hates to see any money leave India. If, as officials insist, India is “one of the most open economies in the world” for investment, it’s open the same way the Hotel California was: Companies are welcome to bring in billions of investment, but it’s hard to repatriate profits or pull out after running into all-too-common roadblocks.

Second, while the private sector may no longer be an ideological enemy, it’s too often seen as a source of funds to ease the government’s fiscal deficit. Spectrum charges, which are the source of the dispute between the government and Vodafone/Idea, are seen as one way to meet fiscal targets.

And finally, to give them their due, some officials and politicians may just be scared. If they are seen to be giving big companies any leeway at all, they may wind up being investigated for corruption.

India desperately needs foreign capital to deal with an investment crunch at home and disputes like this one are hardly likely to enthuse investors. They have more than enough dubious history to reinforce their negative impression. Remember, this is a sector in which foreign companies have consistently lost large amounts of cash thanks to government action. Norway’s Telenor ASA had its license revoked after investing $2.7 billion in the country, even though its case had nothing to do with a scandal that led to a mass cancellation of licenses. Russia’s Sistema JSFC suffered similarly.

Japan’s NTT DoCoMo Inc. struggled to get its money back after a joint venture with Tata Teleservices Ltd. went bad; the government simply refused to let Tata pay its Japanese partners and even ignored an arbitration settlement in London till it was forced to allow the payments by a Delhi court. And, of course, Vodafone itself famously disputed a giant tax bill in court, won, and then was told it would have to pay the money anyway after Parliament retrospectively amended the relevant bits of India’s tax law.

India’s government needs to grow up. It should have the courage to make decisions that benefit companies investing in a struggling sector, or nobody will in future. It should recognize that systemically important sectors like communications need special care. And it should wean itself off its dependence on non-tax revenue to fund populist spending. It may be fun to be a bully, but nobody likes a government that repeatedly throws its weight around.” – Bloomberg

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4 COMMENTS

  1. Supreme court has already emphasize d that basic tenets of our constitution can’t be altered by whatever majority and it will be struck down

    Tharoor is not ignorant of supreme court judgement but intentionally sidesteps it

    If constitution was subverted then it was done by pseudo Gandhi family and Congress I many times in last 45 years

    Tharoor looks frustrated as his wife,s case noose is getting tight as days pass
    So this diversion tactics?
    Hit and run policy.. Congress guerrilla..

    Indian s are inherently secular and it wasn’t taught to millions by Congress I

    V don’t need lessons from them on such issues

    I am a neutral voter and still I find the present Congress I disgusting in its approach to all issues concerning people

    Rather they have so called important issues.. impeachment of cji
    Blockade of parliament etc

    Modi hasn’t made people like me happy but the very thought of these pseudo Gandhi family chamchaas coming back will drive me to right side..

  2. This actually is a Bermuda Triangle where Ship of Indian Democracy has sunk. Founder s of constitution have failed to imagine the formation of this triangle and there is no solution for this problem in force able future because no political party would like to change the situation which they have been milking in collision with other parts.

  3. Not new. This is what constitutionally framed system does in all walks of national life. Call it system charges or corruption, no part of life is free. Creation of every new system has added to it. This is where new generation has to start of thinking and either start demolition or by pass.

  4. “Today they control 20 state assemblies and lead coalitions in two more, which means in five years or so the Rajya Sabha will inevitably be theirs. If they manage to retain control of the Lok Sabha in the next general elections, they will finally have all the elements needed to fulfil their project.”

    Who is responsible for that to happen? IMO, it’s Congress party’s irresponsible and adamant stand not to change its failed leadership is the single most reason that made BJP win elections one after another. Rahul Gandhi as a political leader has failed miserably long back, to be precisely, almost 6 years back when he lost UP state assembly election to Akhilesh Yadav. Congress party and its secondary leadership adamantly carried on under the leadership of a person, who was basically not cut for that role. He could be personally a nice man, unfortunately, not skilled enough to drive the party forward from the current challenges it’s facing.

    As a leader of the opposition party he hasn’t done anything so far commendable and appears to be with no plan so far to challenge BJP in the next general election.

    Sorry Mr. Tharoor, I’m not a believer of miracle that in the remaining couple of months he will become someone really “capable” to defeat BJP to come to power so that he and Congress party will be able to block BJP from changing our constitution.

    It’s ridiculous to say that you are clearly aware of the danger India as a country is going to face if BJP wins the next election, but you are not sincere enough to adress that beyond your shallow thinking, petty in-party politics and the loyalty towards the hopeless concept of “high command”, which is just a family.

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