[op-ed snap] Steps to revival

Context

Supreme Court approved the resolution plan of ArcelorMittal to pay Rs 42,000 crore to local financial creditors and take over Essar Steel after setting aside a ruling of the NCLAT. 

IBC

• • Prominent case – This marks a closure to an important case under the Insolvency and Bankruptcy Code. 
  • CoC – The Court made it clear that the decision of the Committee of Creditors or lenders will be final and binding. This should help faster resolution of more such cases. 
  • Investment – it paved the way for the entry of the world’s largest steelmaker into one of the biggest markets.

Ancillary concerns

• • Supreme Court ruling on dues in adjusted gross revenue hit two major players, Vodafone Idea and Bharti Airtel. 
  • Vodafone reported the highest ever quarterly loss by an Indian corporate of Rs 50,921 crore a week ago, and Bharti Rs 23,045 crore.
  • Indian banks, which had an exposure of Rs 1.15 lakh crore to the telecom sector will get hit. 
  • These lenders will be further hit because of extra provisions and the need for capital if the issue is not swiftly sorted out by the government. 
  • Vodafone had indicated its inability to invest more. It is one of India’s largest FDI investors and a global telecom player. 
  • It has taken a lot of effort to undo the damage caused by the decision of the UPA government to tax the company retrospectively over seven years ago.

Problems with the ruling

• • Failure of the government and policymakers to recognise the interconnection of such decisions on other sectors such as banking. 
  • A good decision like the reduction of corporate tax, which makes India one of the most competitive tax regimes, will be neutralised.
  • This will hurt India’s hope to attract global supply chains shifting from China.

Conclusion

The government should move quickly on the strategic sell-off of BPCL and Air India, address sectoral issues and further strengthen India’s dominant state-owned banks to revive lending.