It is far better for State-run pension funds to invest a sliver of their corpus in high-risk but high-return subprime debt and, thus, create that market for subprime bonds than to hug the safety of gilts at low rates of return.
The government has done well, with its package of financial relief and structural and procedural reform for stressed telecom. The concessions announced are prospective, the immediate relief on offer being restricted to deferment/moratorium on payment of dues arising from the Supreme Court’s penal judgment on so-called adjusted gross revenue (AGR) dues and towards deferred spectrum payments. However, the deferred dues could be converted into equity, meaning that the State would become a stakeholder in the telcos that choose to take up this offer. That would give comfort to investors, when a stressed telco such asVodafone IdeaNSE 25.70 % (Vi) seeks to raise funds. Raising the cap for automatic foreign direct investment in the sector from 49% at present to 100% also makes it easier for Vi to raise funds from external investors.
Scrapping spectrum usage charge (SUC) for spectrum bought in auctions is a sound move. But why keep it prospective? Certain reforms can be carried out only prospectively — if capital punishment is proscribed today, it would not be possible to bring back to life all those legally executed in the past. But that is really not the case with the misconceived inclusion of non-telecom revenues in the AGR that telcos had to share with the government. As much as 70% of the AGR dues are penalty and interest. Now that the government has accepted the principle that non-telecom revenues are not shareable revenues, it shows that the government was wrong, under NDA 1, the UPA and the present regime, to drag the telcos into prolonged litigation on sharing non-telecom dues. A law could be passed to get over the hurdle of the Supreme Court judgment that blocks retrospective rationality.
Paucity of a market for subprime debt is another hindrance to a company like Vi raising resources by tapping the bond market. It is far better for State-run pension funds to invest a sliver of their corpus in high-risk but high-return subprime debt and, thus, create that market for subprime bonds than to hug the safety of gilts at low rates of return.