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Election Doling 2014 Begins?

Monday, August 13, 2012

The Telecom tangle is getting murkier as expected. The cabinet has fixed the reserve price at a whopping Rs. 14,000 crore for airwaves. “This is another extreme”, says Sanjeev Aga, former CEO of Idea Cellular. “In the 2G scam the same amount of spectrum was sold in the range of Rs. 1400 to Rs. 1600 crores. Now it is 10 times more”. Is the reserve price realistic? How many bidders are expected to bid at this or above this price?

The existing well-entrenched players like Bharti, Vodafone, Idea and Reliance already have debts of around Rs. 11,000 to Rs. 13,000 crores each, mostly from Indian banks “These debts are already NPAs, but are not being shown by the banks as NPAs”, asserts Sanjeev Aga, who has been in this industry for well over two decades.

“If existing players borrow another Rs. 14,000 crores each, to fund their bids, then you have the Banking industry going under”, stresses Aga. Don’t forget that PSU Banks already are reeling under huge NPA’s from the aviation sector (read Kingfisher and Air India).

Existing players and some new players like Telenor and Systema might be forced to bid because of heavy investments already made by them in telecom assets. “But this will lead to high prices or administered (so called regulated) price for end-consumers mainly in urban areas”, points out Aga.

“Government says that it will mop up more than Rs 200,000 crores from the auction. It is not clear whether it will be payable upfront or deferred over a few years.

The total revenue of the industry as of today is a little over Rs. 100,000 crore a year. So how do you expect the industry to cough up Rs. 200,000 crores?” ask industry experts. All these point to another mess in yet another industry, which was till two ago, the poster boy of the Indian growth story.

Now comes the dole part of it – free mobiles worth Rs. 7,000 crores to BPL families. All this money will be provided by DoT from the auction of spectrum at the above unrealistic prices and from the 5% that DoT gets from annual revenues of the Industry.

Which means rates will go up for the non-BPL population like you and me, to garner votes from the present 6 million BPL families. This figure of 6 million is expected to go up as the definition of BPL is going to change. And so will the figure of Rs. 7,000 crore.

The end result – an expected grand announcement on the 15th of August by the PM from the ramparts of the Red Fort, and a scramble by people to get themselves registered as BPL, whether or not they qualify.

Now like the NREGA, the real beneficiaries will be cheap mobile handset manufacturers’, who in turn will give kickbacks to the politicians to get the bulk orders.

Also, Babus will get their share of kickbacks, and eventually voters below the BPL will be getting cheap mobiles in rural areas, where there is no network or electricity to charge their mobile phones. Isn’t it a great farce?

This would become another Black Hole, by a government which is tottering. Reforms are now truly on the backburner.

In my opinion, we could expect more scams and doles in the coming months. The Coal Scam is another huge one in the making, where the PMO is directly involved in giving hundreds of coal blocks to private companies at throwaway prices.

I would not be surprised if the government also announces LCD TVs, small laptops or computers in the run up to elections, to be given free to BPL families or poor girl students.

Meanwhile P. Chidambaram, the new FM, is still only talking about addressing the retrospective tax and GAAR issue. That makes it empty promises from 3 different FMs – Pranab Mukherjee, Manmohan Singh and now P. Chidambaram. So far all talk but no action. Also while PC talks of fiscal consolidation on one hand, doles and subsidies are being handed out by the PM increasingly on the other hand.

India is already facing downgrades by international rating agencies, like S&P and Fitch. The growth in the first half of FY 12-13 will be well below the 6% mark, which is another wake-up call, but the government doesn’t seem to be in a mood to wake up from its slumber.

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