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November 13 2012, 08:16AM

India has begun auctioning mobile spectrum reclaimed after the Supreme Court scrapped licences due to a graft-tainted allocation process, but the process has drawn a lukewarm response.

Prime Minister Manmohan Singh's government hopes to raise 400 billion rupees ($A6.96 billion) from the auction of second-generation (2G) spectrum as it seeks to close a gaping budget deficit.

But industry critics said the government-set starting price of 140 billion rupees for a slot embracing all of India's 22 telecom zones -- over seven times what companies paid in 2008 for bandwidth -- was too expensive and deterred bids.

The government said it had attracted 92 billion rupees ($A1.64 billion) in bids by the end of the day. But it got no bids in four zones -- including the capital New Delhi and financial hub Mumbai -- that operators said were too costly.

"Seven rounds of the auction were completed today (Monday). The auction is incomplete and will continue on Wednesday," Telecom Secretary R Chandrashekhar said.

Rajan Mathews, director general of the Cellular Operators' Association of India, told AFP the government "will be lucky" if it gets half the sum it is seeking.

"The high reserve price has been dampening enthusiasm," he said.

"It is difficult to make a business case (for bidding) at these prices."

Two foreign operators -- Norway's Telenor and Britain-based Vodafone Group -- and three domestic firms -- Bharti Airtel, Idea Cellular and Videocon Industries -- are taking part in the auction.

The lacklustre response contrasts with the 2010 sale of 3G airwaves in which the government raised more than $US12 billion ($A11.60 billion).

Early this year, the Supreme Court cancelled 122 licences issued to eight companies in 2008 after it ruled the government under-priced the permits and cost the exchequer as much as $39 billion in lost revenues.

The auction is crucial for companies such as Telenor's Indian unit and Videocon, which both lost their telecom permits, as well as for Idea Cellular, seven of whose licences were revoked by the Supreme Court.

The companies are allowed to continuing supplying services under their cancelled permits until mid-January.

Bharti and Vodafone were not hit by the court order. But they want more bandwidth to improve service as mobile firms in India battle to win new clients in the world's second-largest cellular market.

Nineteen people including a former telecoms minister, senior bureaucrats and corporate executives, have been charged with corruption over the 2008 2G sale in what has become one of India's biggest-ever political scandals.

While the 2010 3G auction lasted more than a month, the current auction could be over within a couple of days, industry executives have said. The sale will last for as long as bids are received.