In 2010, India raised billions of dollars from an auction of telecom licenses that surged beyond expectations.

Story highlights

NEW: Telecom minister says verdict puts an end to confusion in the market

The former telecom minister awarded the licenses in 2008

The 2008 license sale is considered India's biggest corruption scandal under the prime minister

The former minister is in jail for his alleged role in what is believed to be a rigged sale of radio waves to companies

New Delhi CNN  — 

India’s supreme court Thursday ordered the cancellation of 122 cellular permits that have been at the center of a multibillion-dollar scandal involving the country’s booming telecommunication sector, attorneys said.

A telecom minister awarded the licenses in 2008. The former minister – A. Raja – is in jail for his alleged role in what is believed to be a rigged sale of radio waves to companies.

Lawyer Prashant Bhushan called the judgment “historic.”

“It will change the manner in which corruption will be examined and dealt with in the country,” said Bhushan, also the petitioner.

The top court directed the country’s telecom regulator to create in the next four months new ways for issuing licenses that it said had been granted in “arbitrary and unconstitutional” manner, attorneys said.

The 2008 license sale is seen as India’s biggest corruption scandal – one that rattled Prime Minister Manmohan Singh’s government and investor confidence in Asia’s third-largest economy.

A number of corporate executives, bureaucrats and high-profile politicians, including Raja, are facing trial in connection with the suspected scam revealed by the national auditor two years ago.

India recorded a fiscal deficit of 4.7% of its GDP in 2010-11. But Singh’s top economic adviser, C. Rangarajan, has warned it would be difficult for the country to bring the gap down in the current financial year.

In 2010, India raised billions of dollars from an auction of telecom licenses that surged beyond expectations and helped the country trim its losses.

An auction of the 2008 controversial sale of the telecom bandwidth, canceled by the supreme court, could generate new revenues for the Indian government that is struggling to cut deficits that economists blame on high subsidy bills.

“Over the medium term, we should draw up an appropriate roadmap to reach the FRBM (fiscal responsibility and budget management) target of 3% of the GDP. We must focus particularly on reducing the overall level of subsidies as a proportion of (the) GDP,” Rangarajan cautioned in his talk on the Indian economy on Tuesday.

Uninor, the Indian joint venture of Norway’s Telenor and Unitech, is among companies impacted by Thursday’s verdict.

“We have been unfairly treated as we simply followed the government process we were asked to,” it said in a statement, CNN-IBN reported. “We are shocked to see that Uninor is being penalized for faults the court has found in the government process.”

Business analysts, however, fear the ruling could hurt investment sentiments in India.

“The judgment, though correct on the aspects of law, leads to a larger question about government policy and the validity of doing business in the country,” said Rishi Sahai, managing director of financial consultancy Cogence Advisors.

“For foreign investors, there’s probably a big concern now that whether the huge amounts of money they put in stand vulnerable in Indian courts. This ruling, no doubt, has set a bad precedent for further investment in our country,” Sahai remarked.

The Indian government, cornered by opposition and civil society activists over a raft of corruption cases, sought to downplay business worries.

“At last, we have put an end to the kind of confusion that prevails in the market,” telecom minister Kapil Sibal, in welcoming the verdict.

Sibal insisted the ruling offered clarity to telecom businesses. Spectrum, he explained, would be available only through auction and not on a first-come, first-served basis that the court found discriminatory.

In his comments, J.S. Sarma, head of India’s telecom regulator, suggested subscribers of the affected license holders port out to other service providers within the stipulated four months.

He said the ruling impacts 5% of the country’s cellular market, the world’s second-largest, with at least 894 million users.