Business
Spectrum auctions are crucially flawed, says Kapil Sibal (Interview)
Trust an ex-telecom minister who is also a legal eagle -- an attribute
he shares with current incumbent Ravi Shankar Prasad -- to point out a
"crucial flaw" in the on-going spectrum auctions.
Kapil Sibal
says this is "a government of hiccups, that doesn't think things through
and has come up with a flawed auction design".
He says his
mobile phone drops calls on an average of four times during the few
kilometres journey from his Supreme Court office to his current home in
central Delhi.
"This didn't happen earlier" when he looked after
the ministry, Sibal told IANS. "It is because telecom infrastructure is
severely over-stretched, and with the government taking all the money
upfront, there will be even less available for building infrastructure,"
he said.
The crux of the problem, he says, is in the current
auction where high base prices may mobilise large revenues for the
government and may be seen as successful. But there is a flip side to
this in the form of resource commitments by companies to buy scarce
spectrum and the added pressure on an acutely stressed larger financial
system.
"The telecom sector is hugely in debt to the extent of
Rs.3.4 lakh crore. Now, in paying for the high spectrum prices, there'll
be no money for investment in infrastructure," the former minister
said.
For instance, state-run State Bank of India has lent around Rs.40,000 crore to telecom companies.
In
the current ongoing auctions, Idea Cellular is said to have already
committed Rs.30,000 crore. It is followed by Vodafone, at around
Rs.24,000 crore, and Bharti Airtel at Rs.21,000 crore. They are among
the eight companies that are bidding for spectrum.
"With such
massive commitments, the companies won't be able to pay back to lenders,
who then have to restructure these loans. Such bids would lower return
on equity and force firms to raise call costs," Sibal said.
The
load on the larger system can be gauged from the fact that
non-performing assets (NPAs), or distressed debts, of public sector
banks rose to 5.33 percent of total advances in September 2014, from
4.72 percent in March 2014.
Stalled projects have been adding
to banks' NPAs and the finance ministry's latest Economic Survey says
that, as in December-end, these amounted to Rs.880,000 crore-worth.
Analysts
estimate a drop in earnings of up to 33 percent for Bharti Airtel and
Idea Cellular in the 2017-18 financial year, owing to the cost of
renewing their airwaves in the latest auctions.
He pointed out
how, instead of consolidating defence and commercial spectrum into
discrete segments, the government is selling tiny slices of bandwidth
across a wide range, thereby creating scarcity and driving up prices.
It comes down to a question of models and of choices being made, Sibal says.
"Auctioning
will bring you more revenues, but it is not the only model. A
government can also not choose to take all the money upfront and opt for
production-sharing model over time, like there is for oil exploration,"
he said.
Underlining that a government's main objective should
be to increase production and generate employment, Sibal said the
industrial policies of many Indian states are based on giving land at
subsidised rates for industry.
"If auction is the only model, why
don't they auction school land... Punjab is a good example where for
industrial development, a lot of land was given at very subsidised
rates.
"There are many countries where resources are not
auctioned. The Chinese boom wouldn't have happened if the government
didn't give land free to enterprises so that they could invest fully in
production," Sibal said.
Lamenting that the days of cheap mobile
telephony were over, which could put paid to the country's mobile
telecom revolution, Sibal said these auctions had sacrificed public
good, which is the objective of governance.
"I have never said
that the government will not earn more by auctions, of course it will,
but that cannot be the objective. The government has to work to achieve
the maximum benefit to help achieve the ends of public good."