It is clear that financial implications are going to be positive

The Supreme Court verdict in the 2G case, quashing 122 telecom licences and ordering auction of the allocated spectrum within four months, may have come as a body blow to the government and its decision-making process, but the net import of the ruling in the long term should be positive — be it in terms of judicial transparency, signals to foreign investors or consolidation of the telecom sector.

Of more immediate import, however, would be the fiscal cushion that the order has made available in 2012-13 to Finance Minister Pranab Mukherjee who, along with his mandarins, is neck deep in trying to narrow the gap in fiscal deficit targeted at 4.6 per cent of the GDP (gross domestic product) for 2011-12.

3G gains

Considering that 3G spectrum auction in April 2010 along with BWA (broadband wireless access) fetched the exchequer a windfall of well over Rs. 1 lakh crore, with spectrum auction alone accounting for Rs. 67,719 crore, auction of over 500 Mhz of 2G spectrum at current market rates in the next four months is likely to rake in close to that figure, according to ballpark estimates.

In the event, even as the Finance Minister may have to show a fiscal deficit of say 5.6 per cent of the GDP, or about one percentage point higher than budgeted, in his revised estimates for the current fiscal, he may well be able to dub the overshoot as an aberration and stick to the path of fiscal consolidation during 2012-13 and target for a fiscal deficit of about 4.1- 4.3 per cent of the GDP.

“I am putting pressure on my colleagues in the CBEC, CBDT ... and on my behalf Secretary [Revenue] is continuously breathing [down] their neck to improve revenue because our demand and requirement is much more,” Mr. Mukherjee said on the sidelines of a Customs function here.

Asked to comment on the court verdict, he said: “Judgments have come and we will have to examine judgments and its implications. Government will examine it.”

Though Mr. Mukherjee's statement was terse, evidently owing to the likely political ramifications, it is clear that the financial implications are going to be positive. For, except for the telecom operators who are directly affected by the judgment, both India Inc. and the stock markets have welcomed the ushering in of transparency and certainty in policy decision-making in the telecom sector.

Weeding out non-serious players

For one, the exercise of re-allocating 2G spectrum through auction is expected to weed out the non-serious players in the sector through consolidation by way of mergers and acquisitions (M&As). It is clear that a number of players have entered the field to make a fast buck and are averse to putting in their own funds through larger equity stake.

Since a number of new players are largely playing on debt in the sector, a grey area remains on the exposure of banks and how they may be affected in the spectrum overhaul process. Thankfully, a large part of the exposure is through bank guarantees and that is a saving grace for the lenders.