Another huge reduction in spectrum prices needed

The Indian government was counting on one major source of revenue to bridge the fiscal gap for the financial year 2013 (FY13). This source was the spectrum auction. It had a huge target of Rs 400 bn that it had planned to garner from this auction. This is why they had priced the 2G spectrum at the level that they did in November 2012. It is not news that the round of auction fell flat. So it decided to slash the rates by nearly 30% and tried again last week. Unfortunately this round fell through as well since only one operator participated in the auction. Now Goldman Sachs feels that the government needs to slash the spectrum rates by 50% if it plans to get close to its target of raising Rs 400 bn from the telecom sector. But the question is will a price cut of 50% excite the operators and get them to participate actively in the auction?

Given the troubles that the telecom sector is facing; even a 50% cut may not be enough to get the operators to participate. Their reluctance in shelling out large sums of cash comes from their stretched balance sheets and low margins. Thanks to the intense competition in the sector and rock bottom tariffs, operators have been suffering a loss of margins. Most of the new guys on the block are still bleeding. At the same time, the regulatory costs and one time payments have just been mounting up. This has forced most of them to take on huge quantum of debt to meet the payment requirements. Unless things improve for them, they are not very keen to shell out more cash. But they do need spectrum to continue or expand operations. So it is not that the demand is not there. The government needs to keep its targets on the back seat and instead sit down with the operators and listen to them. This will help it to arrive at a conducive pricing. Only then will the spectrum auctions be successful

Black money unearthed this fiscal

Black money has been the bane of the Indian government for quite some time now. Indeed, so serious is this issue that it speaks of a parallel economy in existence. For instance, searches conducted by IT department during 2011-12 led to the discovery of undisclosed income of about Rs 14,017 crore. The figure for 2012-13 (upto December 2012) stood at Rs 6,799 crore. More serious is the issue of the money stashed abroad. Here India has been renegotiating its Double Taxation Avoidance Agreements (DTAAs) with other countries. The idea is to bring its Article on Exchange of Information at par with international standards. It goes without saying flight of such capital has to be given the urgency it deserves. Efforts have to be made to stop it at all costs. These would mean undertaking some much nee ded financial reforms. For starters, the tax system needs to be made simpler. Further, the base needs to be probably widened. All of this to ensure that instances of tax evasion are reduced. The sooner the government does something meaningful on this front, the better off the country will be.

Sharp drop in interest coverage ratio of Indian companies

                                                               Data source: Mint

 It is believed that the financial health of Indian companies is not as vulnerable as that of their Western counterparts. But on certain parameters they fail to feature favourably even when compared to the subprime crisis era. Take interest coverage ratio -a measure of a company's ability to pay interest on outstanding debt, for instance. As per data from Mint, for the 3,500 companies listed on BSE, this ratio has dropped from 5.9 times in December 2007 to 2.7 times in the quarter ended December 2012. Plus the deterioration has been for stocks across market caps. For mid and small cap stocks in fact, the interest coverage ratios have been lower for about seven-eight quarters now. Investors therefore need to be rather watchful about the debt and cash flow position of companies.