With Vodafone threatening to quit, should the Government intervene and sort the crisis faced by the industry?

British telecommunications giant Vodafone has had a troubled time in India. Its entry, led by Indian-origin Chief Executive Arun Sarin, was made to tap the billion-plus Indian consumer market. But the acquisition of the operations of Hutchison Telecommunications Hong Kong by Vodafone led to a huge tax tussle as the Indian Government felt short-changed on matters related to tax and former Finance Minister Pranab Mukherjee changed the law to retroactively charge tax with that one transaction in mind. This change brought in by Mukherjee is cited by several foreign investors as the beginning of the end of the India growth story. Foreign investors have been wary ever since.

The latest development — where the Government demanded that tax on Indian telecoms be calculated on total revenues instead of just revenues and with the Supreme Court deciding in the Government’s favour — seemed to be the proverbial last straw. The British telecom company, which merged its operations with the Aditya Birla Group’s Idea in mid-2018 so as to better compete with the entry of Reliance Industries, was blindsided by this latest demand. The Rs 50,000 crore quarterly loss declared by Vodafone Idea this past quarter is the largest ever in the annals of Indian corporate history. Usually, one would argue that in free markets, companies should be allowed to grow and fail as per market conditions. However, there can be little doubt that the Government is skewing the playing field. For one, some of the tax demands have been plainly ridiculous and companies like Vodafone-Idea and Airtel strongly believe that policies have been designed to favour Reliance Industries’ Jio operations. And while the retroactive tax demand scared all, for the most determined foreign investors, this latest decision by Vodafone, coupled with vindictive policies being followed in some States, particularly in Andhra Pradesh where Chief Minister Jaganmohan Reddy’s politics of vengeance has had diplomatic repercussions, mean they will run. The Government is failing in its endeavour to raise enough money to fund its ambitious social sector schemes, which has led to unmitigated tax terrorism. However, it would behove the Government to learn that only a huge amount of investment can save the economy from going into a dangerous tailspin. While voters have reposed faith in the Modi Government, thanks in no small part to an incompetent opposition, it is failing dramatically in its ambitious “minimum Government, maximum governance” mantra. The Income Tax department in particular is now the greatest fear-monger. The situation can still be salvaged but make no mistake, time to save the economy and investor confidence is running out. And fast.