Wrong Number | Value Research How crony capitalism manipulated the air waves in the name of free market
Economic Viewpoint

Wrong Number

How crony capitalism manipulated the air waves in the name of free market

Much to the discomfiture of the UPA government, the spectrum scandal continues to hog headlines. This is no ordinary scam. In its report presented in Parliament on November 16, the Comptroller and Auditor General (CAG) of India estimated the ‘presumptive’ loss on account of undervaluation of electromagnetic spectrum (or radio frequencies) used by mobile telecommunications companies to be as high as Rs 1,76,645 crore or over US $37.7 billion at current exchange rates ($1=Rs 45), making it the biggest scandal.

The extremely rapid expansion of the telecommunications industry in India, in particular, mobile telephony, in recent years has been accompanied by a series of scandals that have caused huge losses to the country’s exchequer. The scandals are a consequence of poor regulatory oversight and deliberate manipulation of norms. The most brazen of these scandals pertain to the questionable manner in which a finite and hence, scarce and valuable national resource, spectrum, was priced and allocated by the Department of Telecommunications (DoT) under the then Union Minister for Communi-cations and Information Technology Andimuthu Raja.

While the growth of the telecom sector in India is often attributed to the positive impact of deregulation and the government giving up its monopoly over this sector, the other side of the coin is the crony capitalism that is manifest in the way in which the government has applied guidelines in an arbitrary and opaque manner.

What happened in January 2008 was that mobile telecom licences with spectrum were priced at a value that had been arrived at on the basis of an auction that had taken placed seven years earlier, whereas it should have priced seven to ten times higher. It’s as simple as that, even if details about the scam are sought to be obfuscated in technical jargon and legalese. The second aspect of the scandal that the DoT changed its policy to provide existing holders of telecom licences a bonanza by allowing them to use two competing technologies — global system of mobile (GSM) communications and code division multiple access (CDMA) technologies — instead of one as had been the norm. The third and final aspect of the scam is that in 2007, nine existing players were provided spectrum beyond the contracted quantum of 6.2 megahertz (Mhz) despite the fact that many applications for new licences were pending.

The CAG used two parameters for assessing the possible ‘presumptive’ or ‘notional’ loss which the exchequer has suffered. In November 2007, S Tel had written first to the Prime Minister and later to the then Telecom Minister offering to pay Rs 13,752 crore over a period of ten years for allotment of 6.2 MHz of GSM spectrum. The CAG has taken this figure as a benchmark and asserted that based on this figure, the government would have generated a revenue of Rs 67,364 crore by selling 122 new UAS licences, 35 licences under the dual-technology regime and excess spectrum beyond the contracted amount of 6.2 MHz.

After taking into account the revenue that was generated after the public auction of third generation (3G) spectrum in 2010, the price of spectrum for the 122 licences issued can be established at Rs1,11,512 crore against Rs 9,014 crore that the government actually earned. In addition, Rs 40,526 crore would have been generated by selling the 35 licences under the dual-use category and Rs 13,841 crore for the excess spectrum. Hence, the CAG report estimated the total loss to the exchequer, based on the 3G auctions, as Rs 1,76,645 crore.

The total figure of the loss incurred by the exchequer is significant, but perhaps less important than the deliberately arbitrary manner in which licences were issued ostensibly on a first-come-first-served basis in violation of basic norms of fair-play and probity to favour a select few firms, some of whom had no prior industry experience. The government has acted rather late in the day. The question being asked is why the Prime Minister chose to remain passive or silent when his own erstwhile Cabinet colleague refused to accept his advice and ripped off the exchequer.

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