This is another face of capitalism, albeit an ugly one. But it is as much an inherent part of the various moods and hues of ideology. Large companies, on the brink of bankruptcy, are trying to make last-minute deals to remain profitable, or survive. But if the logic of capitalism is that the government has no business to be in business, and the private sector should run to the policy makers to be bailed out, there is only one way – keep your head above the water, or declare bankruptcy. After the Supreme Court forced the telecom companies to pay their huge dues on revenue share to the government, this is, in fact, the way forward for several reasons.
The first is that this trend is not sector-specific. Across segments, and across size brackets, companies are in trouble. Some of the biggest names such as Jet Airways, DHFL, IL&FS, Bhushan Steel, Essar Steel, and several others declared bankruptcy, and were sold off – often at huge discounts, or haircuts on the outstanding loans. The same rules should apply in all sectors, and telecom cannot be any different. Let Vodafone-Idea fail if it has to. In future, even if the largest Indian enterprises are on the verge of loan defaults due to burgeoning debt, they should be allowed to fail, and then rise from their ashes like a phoenix.
A recurring theme to prevent such failures and bankruptcies, or an excuse to ask for government bailouts, is that it is in public interest. If Vodafone fails, and Airtel is crippled, what will happen to the billion-plus subscribers? Let’s rephrase this question. When the Supreme Court cancelled 122 mobile licences in one go after the 2G scam, and dozens of large businesses had to shut shop, what happened to the subscribers? Nothing, they coolly shifted to other service providers. The same will happen this time. Under the new insolvency code, the lenders can find new buyers to rejuvenate Vodafone and Airtel, which is more crucial in public and national interest.
Let us not forget that the telecom companies are to be blamed for the current problems. Two decades earlier, they agreed to a bailout deal with the government, and shifted from auction payments to revenue-share. And immediately, they tried to reap advantages of the new agreement by contesting the revenue-share percentages. It hit them like a hammer when the Supreme Court ruled that the government’s calculations were right, and the telecom firms had to pay the outstanding amounts, penalties on it, interest on the amounts, and penalties on that. The total amount, obviously, was whopping and unimaginably huge.
In the process, the companies’ managements, boards, and auditors – deliberately, arrogantly, or stupidly – did not make any provision for these payments in the several annual balance sheets. Every company is bound to do that for a contested case. But the telecom firms were overconfident that they will win against the government, or the latter will bail them out as it had on earlier occasions. There is a ready case for shareholders’ action against these boards and auditors. Unless a balance sheet is clean, or at least, there is an attempt to do so, what is the point of such financial disclosure? This too is part of the various faces of capitalism that we mentioned earlier.
The votaries of capitalism cannot have their cake and eat it too. They cannot ask the government to stay away, and not interfere with their operations unless there is an illegality. At the same time, they cannot run to the government to be saved from bankruptcy because of poor management decisions, unprofessional boards and auditors. Both shoes have to be on the same track; one cannot go right, and the other left. Shocked that the court’s earlier order was stayed by a desk officer in the government, Justice Arun Mishra, one of the three judges, said, “If this is not the outcome of money power, let me speak. This is not the way your officer should behave.”