Spectrum swap with defence on cards.

NEW DELHI: The defence ministry may hold the key to deal with India's twin deficit headaches—fiscal as well as current account deficits. The ministry is examining a proposal from North Block to swap spectrum in the 1,900MHz band with airwaves having 2100MHz frequency that can be used for 3G services. Along with the 2G auctions the finance ministry hopes to collect close to Rs 73,000 crore from the 3G spectrum sale.

Sources in the government told TOI that the finance ministry has estimated that the swap deal will open up additional 2x20Mhz of the higher frequency spectrum and help the government mop up about $8 billion (around Rs 48,000 crore) through the auction of four slots. Given the "prevailing market conditions", which are subdued, the finance ministry's calculations assume a 50% discount to last auction.

In addition, the finance ministry expects the telecom department to generate close to Rs 9,500 crore through auction of 900MHz spectrum in Delhi, Mumbai and Kolkata to GSM players. In addition, another Rs 15,000 crore is expected from the 1,800MHz, although the actual realization may be higher if defence forces vacate more airwaves at their disposal.

Even the 2,100MHz spectrum is with defence forces and the Cellular Operators Association of India (COAI) has suggested that the government can offer 1900MHz in return for getting higher frequency. The 1900MHz band was proposed to be swapped with 800MHz used by CDMA operators. But COAI has argued that there is little demand for spectrum from CDMA players. But, the government seems to have already accepted the COAI proposal and sent it to the defence ministry, which is currently examining the proposal and may take a view soon. The finance ministry also believes that a large past of the $8 billion will come through FDI route after the government allowed 100% FDI in telecom. "With de-valued rupee, any FDI now will translate more in rupee terms than earlier," the finance ministry told DoT. More FDI makes it easier to finance the current account deficit, where pressure has eased due to a sharp decline in gold imports.

Besides, government finances are in a precarious position. Officials reckon that it is not easy to squeeze spending every year and this year the problem is compounded by slow revenue collections. During April-August, gross tax collections went up by less than 9% to a little over Rs 3 lakh crore, compared to Rs 2.85 lakh crore a year ago. Finance minister has budgeted for a 19% growth in non-tax revenue this year. In contrast, spending grew over 17% during the first five months of the current fiscal, marginally higher than the budget estimate of 16%. As a result, the fiscal deficit at the end of August was estimated at just over Rs 4 lakh crore, which was close to 75% of the budget estimate.

Given that the government intends to stick to fiscal deficit of 4.8% of GDP, the spectrum sale will help bridge the gap. If the finance ministry's calculations turn out to be true, the government will get a Rs 32,000 crore cushion as it has budgeted to collect around Rs 41,000 crore from other communication services, including spectrum sale. Separately, the finance minister is taking other steps to boost non-tax revenue collections through higher dividends from public sector companies and banks.

Source : timesofindia.indiatimes.com