Fear of having a Voda-Idea default could have a profound impact on the Indian economy

Mumbai, Ta. 17 February 2020, Monday

After Vodafone-Idea's offer was rejected by the Supreme Court on Monday evening to deposit Rs 1 crore from the amount paid for the Adjusted Gross Revenue (AGR), Vodafone-Idea is likely to pay a debt default.

Vodafone - Idea's failure to pay the AGR and if it ceases to function, is likely to have a profound impact on the Indian economy and the banking system.

In addition to the default in paying off large amounts of debt if the company ceases to operate, there is a risk of losing a large number of jobs and causing a rift in customers.

In case of default of Voda-Idea, India's fiscal deficit may increase by 8 basis points. The Finance Minister is projecting the fiscal deficit for the current fiscal year at 8.5 percent and the GDP for next year at 8 percent, with the budget presented for the fiscal year 1-3.

Of the total debt of the company, it stands at Rs 2.5 trillion, of which Rs 1 billion is to be paid to the government and Rs 2 billion to the banks. The amount to be paid to the government includes spectrum debits.

A default of such a large amount could increase India's fiscal deficit, said one analyst. After winning the AGR related case against the telecom companies, the government has decided to get big money from the companies.

If the company closes, about 200 million customers will be in trouble. The lack of telecom service also threatens to temporarily halt customers' online operations and online banking transactions. Customers may be forced to avail another telecom service and also take advantage of the number portability. The employment of 3 employees associated with Voda-Idea will also be jeopardized. There will be a direct impact on the employees, while it can have a serious indirect effect on the vendors and other stakeholders.