Method of Vodafone bailout may come back to bite govt in the butt

Vodafone Idea, the beleaguered telecom operator, received a strong lifeline from the government earlier this month. Under the relief package, 95 percent of the dues of Rs 87,695 crore owed to the government will be frozen for a decade. Vodafone will pay only Rs 124 crore per annum for six years starting March 2026, and then Rs 100 crore for the next four, before paying up the balance 95 percent in six equated monthly instalments after the department of telecom recomputes what Vodafone owes it on account of adjusted gross revenues (AGR).In a judgment delivered in September 2019, the Supreme Court ruled in favour of the government’s definition of AGR, which meant that telecom companies had to shell out massive amounts for past dues. While all telcos were impacted, Vodafone Idea was the worst affected, thanks to its massive debts and accumulated losses. 

In the quarter ended September 2025, Vodafone reported losses of Rs 5,524 crore, and its total debt amounted to Rs 2.39 lakh crore. Without the relief package, no bank would have lent Vodafone money to expand its network and retain its already shrinking customer base. 

This special treatment of one telecom player is problematic, not because of the issue it seeks to address (staving off Vodafone’s impending bankruptcy), but how the rescue has been done. The government has essentially sought to help Vodafone by giving its dues special treatment, making nonsense of the basic premise of equal treatment under the law. To be sure, the law allows the state to treat state sector players differently (which is why thousands of crores can be pumped into Bharat Sanchar Nigam Ltd - BSNL) without anyone batting an eyelid. BSNL last got a bailout of Rs 1.64 lakh crore in 2022, and turned in two quarters of back-to-back profit last year, thanks to this largesse. 

But by giving Vodafone a special lifeline, the government has effectively said that it can treat different private sector players differently, albeit with a nod from the Supreme Court last October. In those hearings, the government argued that if Vodafone went down, competition in the sector would diminish and the interests of thousands of customers and employees would be at risk, not to speak of the money owed to many public sector banks. 

Now, Bharti Airtel and Tata Teleservices are reported to be seeking equitable treatment. If denied the same, they may go to the courts to seek justice, but considering that the Supreme Court has already allowed the government to make an exception for Vodafone, they may not be successful. However, the problem of unequal treatment remains, and could create a precedent for future bailouts to private sector companies that are deemed too important to fail. 

There was a simpler way to give Vodafone a bailout on its AGR dues without raising the spectre of unequal treatment. The government could, for example, have converted its entire AGR dues of Rs 87,695 crore into equity at par by first raising its stake to 100 percent, and then using the same money to repay itself on its AGR dues. Of course, this came with the downside of making Vodafone a government company, but that is precisely why it could have been given special treatment like BSNL without upsetting other private players. It could, at a later date, have sold Vodafone to a third party, or listed it at a premium to the price it had paid for buying Vodafone shares after the company was put on the path to revival. When this could be done with banks like Yes Bank, one wonders what was the need to be so wary about the short-term nationalisation of Vodafone. 

Sometimes, the government gets too tied up in ideological niceties to do what is in the public’s best interests. Having made an exception for Vodafone, isn’t the Supreme Court itself guilty of creating a precedent it cannot easily ignore when such requests come in the future?