Government panels to examine financial woes of telcos, power firms
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New Delhi: The government has decided to set up inter-ministerial panels to examine financial woes of telecom and power companies and recommend solutions, communications minister Manoj Sinha said on Wednesday.
While intense competition in the telecom sector has squeezed margins of some companies and raised fears of defaults on loans taken from banks, the power segment faces a situation where distribution companies are unable to pay to the electricity producers. “An inter-ministerial group has been created to examine systemic issues of viability and repayment capacity and furnish recommendation for resolution of stressed assets at the earliest. It is for telecom and power,” Sinha said. According to a government source, similar panels will be formed for some other sectors also.
The Reserve Bank of India (RBI) last month asked banks to review immediately their exposure to the telecom sector, which has a debt of Rs4.6 lakh crore, and make higher provisions to firewall their business against any future stress. Emphasising that the government is well aware of concerns of the telecom sector, Sinha assured that an “appropriate action will be taken at an appropriate time”. He said that a meeting was held under the chairmanship of the cabinet secretary to discuss concerns of both the sectors. “... The policy reforms and strategic intervention identified by the inter-ministerial group will be examined and processed expeditiously,” Sinha said. The telecom companies have been bleeding due to the pressure on revenue and profitability in the wake of competition intensified by the entry of Reliance Jio.
The minister on Wednesday said that the customers have benefited from competition in the sector. “Whenever a new entrant comes, this kind of situation is created, but it settles down in a year or two,” he said. Jio’s entry, he noted, has not only reduced the tariffs but changed the traffic pattern from voice to data. The ministry wants competition in the sector and also to ensure strong financial health of the industry, he asserted. Citing the data explosion in the country over the past quarters, the minister said that the Indian market was large enough to ensure growth for all operators. “Everybody is trying to increase their footprint,” he said. To a query on internet companies struggling in the wake of low tariffs, he quipped, “If consumer is getting data for Rs20, should the government intervene and say provide it for Rs100!”
Earlier this year, the telecom commission in a letter to the Telecom Regulatory Authority of India (Trai) warned of a loan default by operators. It asked the telecom regulator to revisit its tariff orders and free promotional offers of firms like Reliance Jio. The then-telecom secretary J.S. Deepak, who headed the telecom commission at that point, had flagged the “serious impact” of promotional offers on the financial health of the sector and the capability of the companies to meet their contractual commitments, including payment of instalments for spectrum purchased and repayment of loans. Trai, however, strongly defended its stance and retorted that its policies were aimed at promoting competition and lower tariffs that benefited consumers.