India is mulling a comprehensive settlement of Vodafone Idea's massive Rs 2 trillion financial dispute just as British Prime Minister Keir Starmer prepares to visit this week, according to Bloomberg.

Government sources told Bloomberg that deepening UK ties has become particularly important for New Delhi after relations with the US soured following Donald Trump's return to the White House.

With efforts to reset China ties only just beginning, India sees value in prioritising relationships that are already working well.

The proposed deal would waive interest and penalties on Vodafone Idea's dues, then offer concessions on the principal amount.

Unfair advantage

Officials are reportedly drafting this framework while trying to ensure other telecom operators like Bharti Airtel and Reliance Jio don't challenge any perceived unfair treatment.

Bloomberg reports that one option under discussion involves seeking revival plans from all operators in exchange for concessions, making sure Vodafone Idea doesn't get an unfair advantage over competitors.

Vi shares drop

The settlement discussions come as Vodafone Idea's shares dropped over 4 per cent on Monday ahead of a crucial Supreme Court hearing.

The telecom company challenged the Department of Telecommunications' demand for an additional Rs 9,450 crore in adjusted gross revenue dues.

This fresh dispute centres on whether the government could raise new AGR claims for periods up to 2016-17, which Vodafone Idea argues were already settled by the Supreme Court's March 2020 judgment.

The company maintained that Rs 5,606 crore of the demand relates to financial years that should be off-limits under that earlier ruling.

The government finds itself in a peculiar position—it became Vodafone Idea's largest shareholder earlier this year after converting Rs 53,000 crore of the company's dues into equity, giving it a 49 per cent stake.

During recent court hearings, the government's own counsel acknowledged that "some solution may be required" given public funds are now tied up in the carrier.

Bloomberg highlighted that the latest hearing and the move to settle could shake up India's telecom sector. Vi hasn't posted a quarterly profit since 2016 and desperately needs fresh investment to compete with Reliance Jio and Bharti Airtel.