The government might fall short of its target to raise Rs 40,000 crore from the auction of second generation (2G) airwaves this financial year, with collections at base price estimated to be at Rs 16,000 crore, putting further pressure on its fiscal condition.
The target will be met only if telecom operators, which are finding even the current reserve price too high amid stretched balance sheets and shrinking margins, raise the bid to at least 2.5 times the base price, or pay the entire money upfront instead of installments, as per the finance ministry's calculations.
“Though companies are expected to bid higher than the base price, it is unlikely to reach near Rs 40,000 crore. Margins of telecom companies are shrinking,” a finance ministry official said, requesting anonymity.
The auction could have failed if the price was kept higher, thereby putting at stake even the amount the government is expected to get now, the official said. He, however, added it would not hurt government revenues over a long run.
Earlier this month, the Union cabinet had fixed the price at Rs 14,000 crore for auctioning 5 MHz of radio bandwidth in the 1800 MHz band for GSM operators. Further, it set the price of airwaves in 800 MHz band for CDMA operators at 1.3 times that of 1800 MHz waves.
The Budget estimate of Rs 40,000 crore was based on the premise that the entire payment would be made this year. The cabinet later allowed telecom operators to make staggered payments over 12 years. Now, GSM operators have to pay 33 per cent of the auction price in the current year itself, whereas CDMA operators will pay 25 per cent.
Thus, at the base price, the 13.75 MHz bandwidth up for sale in 1800 MHz band will fetch about Rs 12,800 crore in the first year while the 3.75 MHz waves in 800 MHz band is expected to earn the government about Rs 3,400 crore this year against a total of about Rs 52,000 crore in the case of a lump sum payment.
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The budget division in the finance ministry, already struggling to keep its finances under control amid muted tax collections, delay in public sector firms’ stake sale and rising fuel subsidies, has been sounded about a possible shortfall in collections from the auction of 2G spectrum. The government will reassess its target of limiting fiscal deficit to 5.1 per cent of gross domestic product after the mid-year review of the economy.
Earlier in 2010-11, the government had mopped up Rs 1.06 lakh crore from the sale of radio spectrum for 3G and wireless broadband (BWA), against an estimate of Rs 35,000 crore. That was at a time when telecom companies had strong balance sheets and enough elbow room to bid higher.
“We expect that many of the telcos whose licences were cancelled by India's Supreme Court in February 2012 will not participate in the re-auction, as most telcos have a stretched balance sheet,” Fitch Ratings said in a recent report.