NEW DELHI, INDIA: India should auction 2G spectrum and allow this to be traded rather than give holders of telecoms licences entitlement to the radio waves as is the current practice, the government said on Thursday.

The suggestion in an economic survey presented to parliament ahead of Monday's budget comes as India is gearing up for auctioning third-generation (3G) radio spectrum.

The 2G spectrum is free with a telecoms licence and operators have to pay an annual fee for using it and firms are not allowed to buy or sell spectrum.

Scarcity of 2G spectrum in the world's fastest-growing wireless market has been a major roadblock in mobile firms' expansion and has hit quality of services. High prices fetched from recent stake sales in private telecoms has also raised several eyebrows regarding the valuation of spectrum.

"Spectrum should be auctioned and be freely tradable among companies having a telecom licence," the economic survey said.

"The auction price can be in the form of a fixed price or charge per unit of bandwidth per annum or a combination of the two," it said.

Under the existing policy, companies get 4.4 MHz as start up spectrum when they acquire a telecoms licence. The government has contractual obligation to give them spectrum up to 6.2 MHz as their subscriber base grows.

The survey also said spectrum for 3G wireless technology should also be made freely tradable and capital gains on spectrum should be taxed under the Income tax Act.