“If your Merc was sold by a thief for the cost of a Maruti 800 to an innocent, do you take it back or let the innocent buyer keep it?,” a blogger named Vidyut tweeted soon after the Supreme Court verdict.
The landmark verdict means the buyer cannot keep it. While the outright cancellation of all 122 licences issued in 2008, came as a big jolt for the buyers, it also affects confidence of investors in the sector, said experts.
“This judgment will severely damage India's reputation globally. It will shake people's faith in the sanctity of any contract with the government. After spending billions of dollars, one fine day you are told that your licence is no longer valid, will shake even the strongest of India supporters,” Shankar Sharma of First Global told Business Standard. Telenor, Etisalat, and Sistema had made sizeable investments in the Indian operations since the award of licences, said Harsh Jagnani, senior analyst, ICRA Ltd. “The judgment would adversely impact the investor confidence in the sector, especially for foreign investors,” he said.
The government agency responsible for foreign direct investment did not have much to say. Department of Industrial Policy and Promotion (Dipp) secretary P K Chaudhery said, “We should respect the SC decision."
R P Singh, former secretary, Dipp said, “As far as policy formulation is concerned, this will not give a good impression about India.” But, Singh feels the independence and transparency of the judicial system will bolster confidence of investors.
Judicial remedy is what most foreign investors said they are exploring. While Sistema of MTS said it reserves its right to judicial remedies, Norway-based Telenor, which is part owner in Uninor, whose 22 licences stand cancelled, said it was a foreign investor that trusted a licence stamped by the government.
“When we have not caused any of the faults found by the courts, it is obvious to everyone that our investment must not be jeopardised,” it said in a statement. Telenor said it has invested over Rs 6,100 crore in equity and over Rs 8,000 crore in corporate guarantees.
Investors and potential investors in both telecom and in other sectors are gripped by uncertainty as the court found the “first-come, first serve” policy discriminatory per se. This has cast a shadow on some other sectors, including mines and minerals, where contracts have been awarded on this basis.
Among the listed firms, Idea Cellular has the highest foreign holding of 43.5 per cent. Three Mauritius based corporate bodies hold nearly 30 per cent in the company, with Foreign institutional investors holding the rest. Bharti Airtel, Reliance Communication had holdings of 17. 5 per cent and eight per cent FII holdings, respectively.
While Bharti and Idea ended with gains, R-Com shares shed 3.5 per cent. The broader market also did not panic much as the Sensex ended with a gain of 131 points. “The larger negative implications on India's attractiveness are undeniable. And not to mention that call rates may go up, which will hurt consumers across the board. What greater good is being served?” Sharma of First Global asked.
The government though put up a brave face calling the episode a new beginning. Union Telecom minister Kapil Sibal said, “The sector is crying for investment. There is now clarity in policy and sanity in the sector. So far as foreign investment is concerned, there is huge opportunity in 3G, 4G and also 2G."