telecom sector: Telecom’s share in NPAs a concern: Economic Survey

NEW DELHI: Reliance Jio’s entry with free voice and data has led to a brutal price war in the telecom industry, hurting revenue and profitability of incumbents amid ballooning debt, increasing the sector’s share of non-performing assets, which is a cause for worry, the Economic Survey said.

“With introduction of Reliance Jio Infocomm on 5 September 2016, competition extended from cheaper calls to cheaper data,” the Economic Survey Volume 2, released Friday, said.

Jio’s pricing scheme “forced incumbent telecom firms” to cut voice call rates and cost of 1GB data to average $1.9 during January-March 2017, the survey added. Adjusted gross revenue of the top three telecom companies in India – Bharti Airtel, Vodafone India and Idea Cellular – fell sequentially by 7.98 per cent, 5.14 per cent and 4.91 per cent respectively in the third quarter of FY17.

The competition has “trapped the telecom sector into highly leveraged with interest coverage ratio turning less than 1 since third quarter of 2016-17,” the survey said. “However, what’s worrying is that share of the telecom sector in the non-performing assets (NPAs) has now increased… the share of NPAs of telecom sector in total NPAs of infrastructure sector increased to 8.7 per cent in 2016-17 from 5 per cent in 2015-16,” it said. However, the total NPAs of telecom sector in public sector banks fell to Rs 2,335 crore from Rs 3,465 crore in the same comparable period.

The sector has debt of nearly Rs 5 lakh crore and the banking sector — which pegs debt at Rs 7.29 lakh crore — is worried that competition will lead to defaults.

As per the survey, the mobile industry in India accounts for 6.5 per cent ($ 140 billion) of GDP, and employs over 4 million people direct and indirectly.

The survey added that not only was the banking system exposed to the telecom sector but also the government to whom the companies owe a variety of fees and taxes. “The telecom sector has experienced its own…

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