Though India has had telecom auctions since much earlier, the CAG report on the A Raja 2G scam, and the subsequent one on coal auctions, ensured auctions were going to be the only way the government awarded contracts in the future, whether for spectrum or for mines or anything else. And while many argue this was an over-reaction and that auctions would drive up consumer tariffs, this is simply not true.
For one, the government has no objective way to award contracts and open itself up to charges of crony capitalism if there are no auctions. Two, the continuously falling prices of telecom services in the country, even before RJio decided to launch its services, is testimony to the fact that it is not auction bids but competition that determines consumer tariffs. Indeed, if the government is keen to protect consumers—those getting subsidised or free water from the municipal authorities prior to bringing in the private sector, for instance—this can even be factored into a bidding process which will yield optimum results.
In such a situation, obligations like free/subsidised water can be laid down as pre-bid parameters and, if the government offers a viability gap funding (VGF), those bidding for the lowest VGF will win the auction—this is the model that works best for utilities being privatised; the presence of a regulator is another way to marry bids with the need to keep tariffs low in natural monopolies like airports and provision of electricity services.
That is why it is particularly unfortunate that Indian Hotels that owns the Taj brand of hotels should want to contest the New Delhi Municipal Corporation’s (NDMC) plan to re-bid Taj’s iconic property on Mansingh Road in south Delhi. Indian Hotels got the lease for a 33-year period when negotiated leases were the order of the day and when proximity to government was critical for such negotiations—when this ran out in 2011 and NDMC wanted to auction the land, Indian Hotels decided to go to court and it has lost both the original case in the Delhi High Court as well as the appeal last week; it now plans to approach the Supreme Court on the matter.
Whether a 40-year period is enough for a hotel to get back its investment is not the issue—there is no logic to suggest a 20-year period is good enough for telecom licenses but, like it or not, that is what the law allows. Now that an auction is de rigeur, instead of trying to further challenge this in court, Indian Hotels’ best bet is to ensure it bids the highest values to retain its property and, should it feel the bidding will get out of control with rivals like East India Hotels keen to get the property which has a great location, it needs to look around for another location—chances are, that too, will be available only at commercial rates.