Poor auction returns upset govt's reform measures

Poor auction returns upset govt's reform measures

Poor auction returns upset govt's reform measures

Lukewarm response to the 2G spectrum auction has virtually upset the government’s plan to bridge the growing fiscal deficit.

Keeping high hopes of raising at least Rs 40,000 crore through the auction, the Ministry of Finance had recently revised the fiscal deficit target to 5.3 per cent of the GDP in the current fiscal.

However, Wednesday’s auction dealt a major blow to the government’s plan as only Rs 9,407 crore was raised, almost one-fourth of the anticipated amount.

Sources in the Department of Telecom said net revenue generated from the auction may amount to only a few hundred crores after adjusting the entry fee already paid by operators in 2008 for licences that were later cancelled.

Three out of the five companies which were successful bidders in Wednesday’s auction - Idea, Videocon and Telenor, promoted Telewings Communication - were among the companies whose permits were scrapped by the Supreme Court in February this year.

Together, Idea, Videocon and Telewings Communication had paid RS 4,326 crore for the licences in 2008. Idea had paid Rs 1,168 crore, Videocon Rs 1500 crore and Telewings (earlier Uninor) Rs 1,658 crore. These amounts will be adjusted against the earnest money deposited for the auctions. Hence, out of the total Rs 9,407 crore, only Rs 5,081 crore will remain.

As the government had allowed the companies to pay only 33 per cent of the bid amount upfront and the rest in deferred payments, it may finally end up getting around Rs 1,660-2,000 crore in this fiscal.

Though the government allowed the telecom companies to raise the funds through external commercial borrowings to ensure early payment, the DOT is doubtful whether the companies will utilise this benefit for early payment.

Though Telecom Minister Kapil Sibal on Wednesday said the DOT will continue to hold auction of the unsold spectrum, the government is wary of a similar tepid response from the industry. Sources in the DOT said the department will deliberate on all issues including the unsold spectrum in four circles and CDMA spectrum and make recommendations to the Empowered Group of Ministers headed by Finance Minister P Chidambaram.