India PM in trouble as country scraps satellite deal

India's former telecommunications minister Andimuthu Raja (C) arrives at a court for a hearing in New Delhi on Thursday. (Reuters)

India on Thursday scrapped a lucrative telecoms contract due to irregularities, dealing a fresh blow to the country's embattled prime minister whose office was ultimately responsible for the deal.  

The main opposition party has accused Prime Minister Manmohan Singh of heading a corrupt government that has sold access to the world's fastest growing mobile phone market at rock-bottom prices, depriving the state of billions of dollars in revenue and scaring off investors.

The new controversy came a day after Singh denied talk he would resign, underscoring the gravity of the scandals.

Federal Law Minister Veerappa Moily said a contract to lease satellite space in 2005 to Devas Multimedia, a small firm, had been revoked after an investigation into how the deal was approved without a proper bid. The contract was granted by the Indian Space Research Organisation (ISRO). 

Failure to seek the highest bid to access the satellite space, which can be used for wireless broadband and other data services, may have cost the state billions of dollars in lost revenue, according to Indian media reports. Devas paid $220 million for the lease, the media reports have said.

"We have gone to the root of the matter," Moily told reporters, adding the contract between the government and Devas "shall be annulled forthwith."

The Congress party-led government is not at risk of collapsing because of its support from coalition allies, whose positions within government keep them from jumping ship.

The nature of India's political landscape also means many parties are more focused on winning state elections, including several that will come up over the next few months. The next general election is still three years away.

Allegations the government may have lost up to $39 billion in revenue after companies were awarded separate mobile licences in 2007-2008 at low prices in return for kickbacks have caused months of parliamentary paralysis and rattled India's markets.

Singh's former telecoms minister is under arrest along with a senior executive of Etisalat DB, whose company won one of the licences.

The investigation into telecoms licensing reached the highest levels of corporate India on Wednesday when billionaire Anil Ambani, one of India's richest men and chairman of No. 2 mobile firm Reliance Communications, was questioned by police.

Ambani was ranked by Forbes last year as the world's 36th richest man, although the value of his listed assets has tumbled, with Reliance Comm and Reliance Infrastructure the two worst performing stocks over the past year on the main Sensex index.

JPMorgan on Wednesday slashed its target price on Reliance Comm by 49 percent, citing lower estimates for wireless and broadband segments and issues related to spectrum regulations.

Reliance Comm shares rose 0.25 percent on Thursday, while Reliance Infrastructure ended up 1.6 per cent in a market that was 1.13 percent higher.

The Devas satellite reversal is troubling for Singh because his office was responsible. In the 2G mobile scandal, the licences were granted by his telecoms minister.

The prime minister, who oversees the Department of Space, is accused of acting too late in cancelling the contract despite a government report in mid-2010.

"Devas proceeded with the project after required consent and approval were obtained within GOI (Government of India), culminating with Space Commission and Union Cabinet," Devas said in a statement on Feb. 10. 

The ISRO, which reports to the Department of Space, leased transponders on two of its satellites to Devas Multimedia, granting it access to S-band telecom spectrum, worth potentially billions of dollars to communication providers.

While not in extensive use, S-band spectrum is likely to become increasingly valuable in India's rapidly growing mobile phone market, with its ability to provide wireless broadband and other mobile data services.  Singh, who oversees India's space ministry, denied in early February that any revenue had been lost.

Deutsche Telekom  is an investor in privately-held Devas.

PARLIAMENT DEADLOCK?

The last parliamentary session was halted by opposition protests demanding a probe into the telecoms scam, effectively stopping any reform bills such as one to make land acquisition easier for both industry and farmers.

Singh's government now appears close to agreeing to a broad, cross-party investigation into the 2G mobile scandal, paving the way for parliament to resume as normal for a Feb. 21 budget session.

On Wednesday, Singh said he was willing to appear before a joint parliamentary committee, however the opposition is still pressing for a broader investigation.

The government can ill afford another deadlocked session, but most analysts expect a compromise to be reached by Feb. 22.

Foreign investors have pulled hundreds of millions of dollars from the Indian stock market since the start of the year, while foreign direct investment (FDI) has fallen for three consecutive years, from 2.9 per cent of GDP in 2008/09 to around1.8 percent of GDP in 2010/11.

Some of this is connected with the global economic slowdown, but regulatory uncertainty is also a factor. 

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