Why putting on the squeeze won’t tame India’s twin crises

The finance industry is in turmoil. Tax collections have hit stall speed. India’s credit and fiscal crises are joined at the hip.

Consider the $13 billion in past fees that the government is asking from telecom operators. It’s a desperate attempt to squeeze money from an industry in which most players have already vanished or gone bankrupt. The two old firms that are still standing amid intense price competition from newcomer Reliance Jio Infocomm Ltd. will bear the brunt of the recently court-approved demand.

Among them, Vodafone IdeaNSE 10.26 % Ltd. has a one-year default probability of 7.5%, according to a Bloomberg risk model. That puts its $14 billion debt within shouting distance of distressed. If Vodafone Idea goes to banks asking to recast its borrowings, something that the company has so far denied doing, lenders will receive a fresh blow.