THE Indian government's latest mobile telecommunications spectrum auction has flopped, and it has no one to blame but itself. The sale, which was based on regions, has attracted only a handful of bids and what ought to be the two key markets, Delhi and Mumbai have had no bidders at all. After five of the seven planned rounds of spectrum sales, far from bringing in the anticipated $7.5 billion, the government has earned only $1.7 billion. There is a range of reasons why telecoms companies have largely sat on their pocketbooks. The first is that the whole bidding process is onerous and expensive. The second is that the Indian government has treated the mobile telecoms sector as a milch cow, imposing a one-off $5.7 billion charge on operators. However perhaps the most telling cause of this bidding fiasco is that it is a re-run of the original 2008 auction. Earlier this year, the Indian Supreme Court ruled in favor of a petition to cancel the original licenses, because they had been awarded improperly. The government claimed that because the then telecoms minister had allotted licenses on a first-come, first-served basis, rather than through an open auction, the Indian taxpayer has lost out on $33 billion. As a result, a raft of local and international mobile operating companies who had invested heavily in the Indian market and, moreover, abided by the rules laid down by the government led by the present prime minister Manmohan Singh, were deprived of their licenses. There may indeed have been a $33 billion loss for India's treasury, but it has been argued that the reputational damage to India Inc, is going to cost the country a very great deal more. It has not just been international telecommunications companies, such as Norway's Telenor and Russia's Sistema, that have potentially lost hundreds of millions of dollars. Every foreign investor in a position to bring capital, know-how and management expertise to India, will have recoiled in horror at the Singh government's cavalier approach to doing business with the outside world. The cardinal error that has been made is to erect barriers to free trade, where none are necessary.
Despite the apparent financial loss from the first auction, had the bids been allowed to stand, India would by now be working with an efficient and vibrant mobile network which would have facilitated economic growth and boosted the country's undoubted commercial genius. The irony is that this debacle has not even occurred in the name of protectionism. In the long term, it will however make far more difficult future government efforts to guard vulnerable sectors of the Indian economy from foreign competition. The Chinese have been much more organized and effective in their covert protectionist efforts. Whatever the outcome of this re-auction process, India is going to be the loser. It has reinforced its reputation as a challenging place in which to do business, because deals arrived at in good faith by foreign companies can be overthrown without compensation. Even for Indian companies, their home market is a tough place in which to operate. Hence we have seen a surge of investment by the country's mighty industrial groups in foreign assets, where there is the comfort of more reliable free markets and the existence of robust civil law courts.
