The Supreme Court has rightly rapped the Central government for the casual manner in which the 2G auction was conducted which resulted in poor response as against the expected Rs 40,000 crore revenue to the exchequer.
The auction raised only Rs 9,407 crore, and has made all calculations of bridging a part of the fiscal deficit go haywire. If the expectations were raised high because of the robust outcome of the 3G auctions in 2010 they were unrealistic.
But instead of looking at the telecom situation objectively and the circumstances of the auction, the government has tried to blame the Comptroller and Auditor-General of India (CAG) and the Supreme Court for the fiasco. This is a political response and is in line with the unhappiness of the government over the CAG’s role in exposing the 2G scandal and the guidelines of the Supreme Court on the use of natural resources.
The CAG had calculated the notional loss to exchequer from the arbitrary allotment of spectrum in 2008 on the basis of the low mobile penetration then and the consequent high potential for growth. Its estimate of the revenue loss in the range of Rs 40,000 crore to Rs 1.75 lakh crore was based on the business prospects of companies then. It cannot be blamed if the auction did not fetch a similar revenue now when the market is almost saturated in many circles.
The investment climate in the economy and the telecom companies’ financial position were also better then. It is also wrong to fault the Supreme Court’s view, also clarified by the court on the Presidential reference, that auctions are the best and most transparent method to allocate natural resources. Any other method, like the first come first serve method, can be misused in most cases.
The actual reasons for the poor show lie elsewhere. The unrealistically high base price was a deterrent. The price of Rs 14,000 crore for 5 MHz for a pan-India licence was very unattractive for the bidders. The government also did not offer for auction the entire spectrum which was available after the Supreme Court cancelled the wrongly given licences. It is likely that there will be another round of auctions this year.
If the government lowers prices then it may lead to problems because those who bought spectrum at a higher price in last week’s auction may challenge it.