Over the last few days there has been a debate on whether the government should intervene to bail out the telecom companies. For example, the government has stayed away from bailing out DHFL. But telecom may be a different ball game and it would actually make sense for the government to intervene and help the telcos out.

Firstly, if these telcos run into problems, there could be a cascading effect, which can be far-reaching. For example, between Bharti and Vodafone; they owe more than Rs.200,000 crore to banks and to the government. RCOM also owes Rs.47,000 crore but that is already a case of CIRP, so we don’t get into that and RCOM cannot be bailed out. If Bharti and Vodafone Idea get into trouble, the biggest loser will be the banks and the Indian government. Banks have not yet started making provisions for telecom dues but they may have to start making sooner rather than later. There is also an exposure Rs.3000 crore Indian mutual funds have to the bonds of Vodafone besides their equity exposure to Bharti Airtel, RCOM and Vodafone Idea. That could lead to severe loss of trust among retail investors.

In short, telecom poses a systemic risk for the financial system overall. With GDP growth at around 5%, that is the last thing required. Secondly, telecom needs competition and monopoly or duopoly is bad for the customer. Government has earned billions of dollars in spectrum fees over the years and it can use some of for a bailout.