Fiscal deficit target: IDS collection may partially cover for spectrum dent

Experts say higher-than-anticipated indirect tax collections might help bridge the shortfall.

Written by Pranav Mukul , Aanchal Magazine | New Delhi | Published:October 9, 2016 3:49 am
spectrum trading, spectrum trading norms, telecom sector, telecom industry, Fiscal deficit target, india fiscal deficit, arun jaitley, india newsd Not all of the amount that the government raises through spectrum auction is received upfront.

In the post-auction briefing held on Friday, Minister of Communications Manoj Sinha said that the coveted 700 MHz band — which was the major talking point before the beginning of the 2016 edition of spectrum auction, for operators, analysts and the government alike — went unsold at its expensive base price of Rs 11,485 per megahertz because the operators’ “financial situation is not good”.

However, analysts suggest a mismatch between the cost of acquiring airwaves in the said band and its high technical efficiency, thus calling for a reduction of at least 15-20 per cent in the base price for the band. In value terms, spectrum in the 700 MHz band comprised nearly 70 per cent of the total airwaves put on the block this year, and hence ensued in the government selling only 40 per cent of the quantum put up for auction.

Since the government placed its top bets on the 700 MHz, which failed to attract any bids in the auction, it proved to be a dampener for the entire exercise. However, when compared with previous year’s auctions, the operators have picked up no less.

“It is not a failure. It is $10 billion, Rs 66,000 crore (auction). Why do you call it a failure? I think the government did very well by putting on the table a lot of spectrum and it must be congratulated for running a fantastic, open process,” Bharti Enterprises chairman Sunil Bharti Mittal said on Friday at the India Economic Summit organised by the World Economic Forum and the Confederation of Indian Industry.

This year, the telecom service providers picked up 964.80 MHz spectrum in various frequencies, compared with a total of 928.55 MHz picked up in four separate auctions held from 2012 to 2015. Even as the quantum bought by companies was high, the amount raised by the Centre — Rs 65,789.12 crore — isn’t the highest when compared with some of the previous years. The 2015 spectrum auctions fetched nearly double at Rs 1.10 lakh crore.

This happened primarily due to a lack of pressure on the operators due to expiry of licences or spectrum, thus ensuring cautious bidding, unlike what happened in 2015.

“Operators clearly intended to ramp up their 4G and 3G spectrum holdings at minimal upfront cost, given the significant debt overhang (industry debt approximately Rs 4 lakh crore as of March 2016). Unlike the previous auction, there was no business compulsion to acquire spectrum this time. Vodafone and Idea had to augment their spectrum holdings and network capacity to cater to burgeoning growth in data traffic and compete with Reliance Jio,” said Prasad Koparkar, senior director, CRISIL Research.

The Union Budget for 2016-17 had estimated Rs 99,000 crore to be collected from telecom, including Rs 64,000 crore from auctions, Rs 20,000 crore in recurring licence fees and Rs 15,000 crore as deferred payments from spectrum auctioned in previous years.

Not all of the amount that the government raises through spectrum auction is received upfront. As per the payment terms for the latest round of auctions, operators are required to pay half of the bid amount for spectrum in the bands of over 1000 MHz and 25 per cent in the bands below 1000 MHz, translating into a collection of Rs 32,000 crore this year as upfront payment this year.

The shortfall in collections from the spectrum auction are likely to make a dent in the government’s efforts to meet its fiscal deficit target of Rs 5.34 lakh crore or 3.5 per cent of the GDP. Even though the government has been able to garner around Rs 14,682 crore from the Income Declaration Scheme (IDS) this financial year, it will be only partly able to cover the shortfall of Rs 32,000 crore in spectrum auctions.

Notwithstanding the lower inflow from spectrum payments and limited proceeds from IDS, economists said that higher-than-anticipated indirect tax collections might help bridge the shortfall from spectrum auctions, and that the government’s ability to meet its disinvestment target, especially through strategic sale will play a crucial role in meeting the overall fiscal deficit target.

“To a certain extent, there might be a shortfall in the overall fiscal deficit as the government has been able to collect only around Rs 32,000 crore in spectrum auctions as opposed to the target of around Rs 64,000 crore. There might also be a small gap in the budgeted income tax collections. Though that may be covered by higher indirect tax collections of service tax and excise duty, a lot will depend on the disinvestment target, which is a stiff target to meet. Unless the government is able to conduct stake sale in SUUTI and other PSUs as per the budgeted target, the shortfall in disinvestment target may add to the shortfall in collections from spectrum auctions,” Axis Bank’s Chief Economist Saugata Bhattacharya said.

So far in the current financial year, the government has mopped up Rs 3,583 crore from its stake sale in public sector enterprises. The government has a disinvestment target of Rs 56,500 crore including Rs 36,000 crore from stake sale in PSUs and Rs 20,500 crore from strategic stake sale such as Specified Undertaking of the Unit Trust of India (SUUTI). The government has initiated buybacks in several PSUs that are expected to further add to the disinvestment kitty. The process of stake sale in companies held by SUUTI is also expected to start by the end of this month.

Indirect tax collections are also expected to be higher-than-anticipated this financial year. During April-August itself, net indirect tax collections were Rs 3.36 lakh crore at 43.2 per cent of the Budget estimate for 2016-17.

“Given the shortfall in auctions, actual collections should be Rs 67,000 crore as against a budgeted Rs 99,000 crore — a shortfall of Rs 32,000 crore (0.2 per cent of GDP). Despite this, we do not expect slippage in the fiscal deficit target of 3.5 per cent of GDP for FY17, owing to better-than-expected indirect taxes collections and Rs 15,000 crore collected through the tax amnesty scheme,” Nomura India said in its report.