Vodafone Idea default can raise India’s fiscal deficit

18 February, 2020 12:00 AM printer

NEW DELHI: A possible default by Vodafone Idea (Voda-Idea) in paying its adjusted gross revenue (AGR) dues and the company shutting down operations will have serious repercussion on the telecom and banking sectors in particular and the economy in general with large magnitude of debt default, job losses and customer annoyance as the telco faces an imminent risk of shutdown.

A default by Voda-Idea and the company shutting shop, analysts say, could increase India’s fiscal deficit by 40 basis points (bps). While presenting the Union Budget for financial year 2020-21 (FY21), the government had pegged the fiscal deficit for FY21 at 3.8 per cent of GDP (gross domestic product) and at 3.5 per cent for FY20, report agencies.

“Voda-Idea has gross debt of Rs 1.2 trillion, of which around Rs 900 billion is government’s deferred spectrum debt, while around Rs 250 billion is bank debt. A default of such a large scale could increase India’s fiscal deficit by nearly 40 bps, thus having the deepest impact on government receipts despite winning the suit, while creating ripples in the banking sector,” wrote Gautam Duggad, head of research for institutional equities at Motilal Oswal Financial Services (MOFSL) in a recent note.