The Bharatiya Janata Party, which had launched a campaign against the Congress for its failure to auction resources such as coal and telecom spectrum, has scored a major win following the success of two rounds of auctions. The government has in the process raised a whopping Rs3trn (about $48bn) in revenues.

The BJP had launched an attack against the Congress-led United Progressive Alliance (UPA) government a few years ago, after the Comptroller and Auditor General (CAG), the Constitutional auditor, had slammed the government for not auctioning off national resources.

The CAG had in 2011 accused the UPA government of allocating 2G telecom spectrum to favoured players, instead of auctioning them, resulting in a presumptive loss of Rs1.76trn. A year later, it said the government’s failure to auction coal blocks — which were again allocated to select companies — had led to a loss of Rs1.86trn to the exchequer.

The BJP capitalised on these two CAG reports and in the run-up to general elections last year, charged the Congress of indulging in corrupt practices. One of the main reasons for the success of the BJP in last year’s elections was its ability to convince voters that national resources such as telecom spectrum and coal had been handed over to select companies (who had allegedly bribed individual ministers or the party) virtually for free.

The telecom and coal scams — the Congress initially dismissed the CAG reports as hyped up, and claimed the losses were notional — haunted the UPA government until the end of its tenure, with even the Supreme Court cancelling all the allocations in the telecoms and coal sectors.

The new, BJP-led National Democratic Alliance (NDA) government, keenly aware about the need to push ahead with auctions — and to prove that the losses estimated by the CAG were not notional — initiated the process about two months ago.

The auctioning of coal blocks proved to be a huge success, with the government being able to raise a whopping Rs2trn-plus by auctioning just 32 of the 204 coal blocks that were cancelled following the order of the apex court. Piyush Goyal, the coal minister, was overjoyed with the outcome of the auction; he said the government was initially expecting to raise just Rs820bn from the first tranche of the coal auction.

Of course, the auction would also help the central government hand over billions of rupees to some of the poorest (but politically important) states of India including West Bengal, Jharkhand, Odisha and Chhattisgarh. Most of the resource-rich central and eastern states of India have for years complained that the centre has been depriving them of a fair share of revenue.

While the coal block auction has been a success, it could result in India losing out a major foreign investment proposal that has been pending for more than a decade. South Korean giant Posco had announced the single-largest foreign direct investment in the country about 10 years ago, when it unveiled plans to inject $12bn in a steel plant in Odisha.

However, the UPA government sat over the proposal and failed to give the necessary clearances. Under the earlier regime, the government would have allocated iron ore mines to the steel producer for captive use; but with the success of the auction process, Posco would now have to bid for the natural resource, raising the cost of the project. There are fears that Posco might just walk out of the project.

THE aggressive bidding in the auctioning of telecom spectrum has also raised concerns about a sharp increase in tariffs. Idea Cellular, which is owned by the Aditya Birla group, forked out about $4.8bn, followed by other market leaders Bharti Airtel, Vodafone and Reliance Jio (part of Mukesh Ambani’s Reliance Industries).

The four top bidders accounted for 85pc of the winning bids. The government has raised Rs1.05trn in this round of auction for telecom spectrum. But Ravi Shankar Prasad, the telecommunications minister, does not expect tariffs to rise significantly. According to him, a back-of-envelope calculation shows that tariffs will not increase above 1.3 paisas a minute.

Telephone tariffs — and average revenue per user — in India are among the lowest in the world. But the big operators are hoping to make money on data charges. Reliance Jio and other operators are laying fibre optic backbones that will ensure millions of subscribers have easy access to 4G services later this year.

The NDA government has launched an ambitious ‘Digital India’ initiative, and hopes to provide ‘cradle-to-grave’ digital identity for every Indian. There are more than 950m telephone subscribers in the country and about 100m broadband subscribers. Importantly, 80pc of users access their net on their handsets and increasingly on their smartphones.

By 2018, there will be 500m smartphones in use in India. International consultancy Deloitte estimates by the end of this year, Indians would have downloaded 9bn apps on their handsets. Every year, more than 200m handsets are being sold; with cheaper smartphones, their numbers are increasing rapidly.

The success of the coal and telecom spectrum auctions has also boosted sentiments in the banking sector. Credit growth has slowed to the lowest level in nearly two decades this fiscal, but with the auctions, bankers hope that telecom and power sector players would start borrowing funds.

Most of the successful bidders are strapped for funds and will have to borrow heavily. The government has also eased norms for external borrowings for telecom companies to help them fund their expansion plans.

But bankers say they will have to be extremely careful while lending to power companies and telecom operators. Many banks had burnt their fingers after lending aggressively to companies in the infrastructure sector. Large sums had been sunk into projects that failed to take-off because of the failure of the then UPA government to issue environmental and other regulatory clearances for major projects.

Published in Dawn, Economic & Business, April 6th, 2015

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