Investigating the 2G Scam

Why the role of the JPC on the 2G scam is important in setting standards for future governments in power.

WrittenBy:Priya Kale
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You know the feeling when you’re on the wrong end of a good bargain? When you haggle over the price of a Kolhapuri chappal at Dilli Haat/Colaba Causeway? And then, after 2 uses, the chappal strap snaps. What do you do? You become a practitioner in that great doctrine of fatalism – jaane do yaar…it was only a 100 bucks. It seems that we’ve adopted the same sort of fatalism with the 2G scam – jaane do yaar…it was only 1.76 lakh crore. Yet, Vinod Rai’s retirement and the controversial appointment of his successor, which has resulted in Prashant Bhushan filing a Public Interest Litigation against it, has brought the 2G issue back on the slow burner.

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The Joint Parliamentary Committee (JPC) that was investigating the scam in its (leaked) draft report gave the Prime Minister and the (then and now) finance minister a clean chit. The Opposition was so outraged it did not allow the Parliament to function (again) and the tabling of the report was postponed to the Monsoon Session. Once all of the outrage had died out, our attention diverted by the shock of the Delhi Police claiming that Sreesanth was being paid to bowl a bad over (waitaminit!! He has to be paid to do that?), came this bit of news that slipped under everyone’s radar; the JPC may, if it so deigns, meet in June. Perfectly logical solution, I say. Why deal with it now, when we can procrastinate and roll it over to the next session? Before getting into the workings of the JPC though, a recap of what the 2G scam was all about.

License Raj(a)

The right of private players to operate telecom services (among other sorts of communication technologies) is determined by the government in India as per the Indian Telegraph Act of 1885. In 2007, the Department of Telecom (DoT), under the Ministry of Communication and Information Technology (with A Raja as the Telecom Minister), decided that it wanted to allocate spectrum, the band of airwaves within which 2nd generation mobile communications would operate, on a first-come-first-serve (FCFS) basis, instead of auctioning it. It earned Rs 12,386 crore from this sale and the issuance of licenses in 2008. There are two key reasons why this was criticised: One, an FCFS policy is inherently flawed and arbitrary. It does not take into consideration merit or the suitability to run Unified Access Services (UAS, or the umbrella of services for which the 2G licenses were sought). Second, it makes for very bad economics. Fixing a price for a resource, instead of letting the operator(s) bid for it means that there is a high chance that the true value of the resource is not recognised. This is in essence what a presumptive loss is: the government supposedly got much less money by selling licenses at the 2001 rates than it would have, had the licensees paid the actual amount that they thought the spectrum was worth. It became clear how valuable the spectrum and licences genuinely were when Swan Telecom sold 44.73% of its stake to the UAE-based Etisalat for Rs 3,217 crore (license cost: Rs. 1,537 crore), Unitech sold roughly 60% of its stake to Norway-based Telenor for Rs 6120 crore (license cost: Rs 1651 crore) and Tata sold 27.31% to Japan-based Docomo for Rs 12,924 crore (source: the CAG report).

However, an unfair allocation plus bad economics together do not constitute a scam by themselves. The CAG accused policymakers of tweaking of the FCFS guidelines so that even undeserving candidates got licenses and advancing the cut-off date for applications so that those with advance knowledge could avail of the UAS licenses – this was what made the license-allocation controversial. Moreover, the CAG report also accuses the DoT of failing to attempt the de-linking of licensing from spectrum pricing: A 2003 report by the Telecom Regulatory Authority of India (TRAI) had recommended a two-phase mechanism by the end of which spectrum pricing would be delinked from the license fee. Or in other words, the cost of the permission to operate the UAS would be separated from the cost of the space within which it can operate. Consider the analogy of operating a mobile phone. You have to pay separately for the SIM (the permission to use a phone), choose your rental plan (the parameters within which you conduct your communication) and then over and above pay for the calls/sms you make (licensees currently do have a revenue sharing agreement with the government. For a detailed account of how the spectrum pricing works, see this report).

What were the probable loss figures exactly?  The CAG itself gives three possible estimates based on different methods of calculation. The first is Rs 67,364 crore, based on the amount a prospective licensee, S Tel, was willing to pay for spectrum. The second is Rs 1,76,645 crore, after equating the proceeds from the 3G auction with what could have been received if the 2G space had been bid for. Lastly, based on how much money foreign players were willing to pay for access to these licenses, the figure could be anything between Rs 58,000 crore to Rs 1,52,038 crore.

Of course, these figures were disputed. RP Singh, Director General of Audit at the CAG pegged the loss at Rs 2,645 crore, the Central Vigilance Commission at Rs 26,000 crore and the CBI at just over Rs 30,000 crore. Kapil Sibal even propounded his now infamous “zero-loss” theory, which stands vehemently discredited.

The Supreme Court, in February last year struck down all of the 122 licenses allotted in 2008 on the grounds that the allotment process was arbitrary and unconstitutional. While this is a relief in itself, it would require much more than the cancellation of licenses to ensure clarity of and closure on the 2G affair.

The JPC

This is where the JPC comes in. The powers that be have always been uncomfortable with it. Perhaps the washed-out Winter Session of 2010, when Parliament wasn’t allowed to function, was a sign of things to come. The 30-member committee was constituted in February 2011. Its mandate, in part, is to look into the telecom policy (including pricing) from 1998 to 2009 and to examine “irregularities and aberrations, if any” and their resultant consequences. Despite repeated requests by A Raja that he be allowed to depose before the committee, he wasn’t allowed to do so. Moreover, neither the Prime Minister, nor Chidambaram (who was the Finance Minister at the time) were called before the committee despite members in the JPC from the Opposition wanting it. Yashwant Sinha had termed its proceedings “scandalous”; whereas the Congress maintained that the demand for the PM to depose is a “political stunt”.

So what do we know about the controversial aspects of the report? The Hindu (specifically its Deputy Editor, Shalini Singh) has been keeping the heat on the 2G issue and from its series of stellar articles which examines the JPC report threadbare, it is understood that not only does the report lay the blame squarely on Raja, it also claims that he “misled” the PM.  From these articles, it almost seems as though the very aim of the report was to deflect the blame – first, from the Prime Minister by “cherry picking” facts from the CAG report, and second, from the Congress government, blaming Atal Bihari Vajpayee for a loss of Rs 42,080 crore. Another interesting analysis shows that the JPC’s version of events actually contradicts the Feb 2012 judgment of the Supreme Court which struck down the 122 licenses involved in the scam because they were illegal! It has indicted Raja, whose name figures 27 times in the report, without giving him a fair hearing.

In the course of the committee’s existence, many more skeletons have tumbled out of many closets. RP Singh alleged that he was pressurised into signing the CAG report and an expose by CNN-IBN showed that the CBI suspected its own prosecutor of colluding with one of the accused in the case. The most disturbing report though, was also reported in The Hindu which alleged that the senior-most officials to depose before the JPC and the Public Accounts Committee colluded to synchronise their stories. All of these instances not only illustrate the skeletal rot that has set into our institutions but also shows the importance of the judicial and parliamentary checks and balances that our Constitution provides for. This is precisely why the JPC should have called at least A Raja. How can you have an enquiry which, to a large extent, pertains to a scam and not call the main accused when he wants to depose? What is for certain is that 2G is not just an instance of possible corruption – it is the Chernobyl of economic policy-making – the after-effects of which will be felt in the years to come. It is in this context that the role of the JPC (and indeed the Supreme Court) has to be analysed. Given that a part of the terms of reference of the JPC was to “make recommendations to ensure formulation of appropriate procedures for implementation of laid down policy in the allocation and pricing of telecom licences”, two important aspects of policy-making must be looked at: I have already written on the first in a previous article – the need to fix accountability in the functioning of the Cabinet and Manmohan Singh’s role in the whole affair.

The second aspect is equally, if not more important; How should natural (and national) resources be let into the market? This is a question that economic planners have grappled with for a long, long time. The basic problem with giving spectrum away at throwaway prices was that scarce and finite resources must be sold in a manner that serves the larger public good. The Supreme Court, through the February 2012 judgment and through the Presidential Reference, has firmly established the relation between natural resources, the people of the country and the government’s role in allocating the former. It notes in its 2012 judgment that:

“in most instances where constitutions specifically address ownership of natural resources, the sovereign state, or, as it is more commonly expressed, ‘the people’, is designated as the owner of the natural resource(….)The Court also held that natural resources are vested with the Government as a matter of trust in the name of the people of India and it is the solemn duty of the State to protect the national interest and natural resources must always be used in the interest of the country and not private interests (emphasis added)”

What it means is this; Spectrum, and every other natural resource, belongs to you, me, and 1.27 billion other Indians. The government is the authority we’ve trusted to sell these resources on our behalf and in our best interests. It is merely the Bairam Khan to the citizens’ Akbar. In that regard, is the allocation of spectrum over its auction to provide a “level playing field” to all players, as is claimed by the government, a good enough reason to subvert the larger national interest? On the other hand, the Presidential Reference gives the government breathing space in the eventuality that there is a genuine case for an allocation over an auction.

The reason this issue must be raked up now is simple. By the time the JPC tables its report (if at all it does), we will be just months away from the next general election. While these has been a series of excellent reports on different aspects of the scam (the CNN-IBN expose, Mint’s reportage of the issue etc), as citizens of India, now is the time to really step on the pedal of issues that our votes should be based on. For far too long parties have campaigned on the bases of ambiguous issues such as “development” and “inclusive’ growth”, which barely scratch the surface of the governance overhaul that we require. The scuttling of the Indian growth story is not so much because of a crisis in faraway Europe as it is because bad economic policy-making is spooking investors. Whether it is the UPA or the NDA that’s in power next year, we have a right to expect good governance.

The 2G debacle is symbolic of all that ails the Indian administration. This is why the role of the JPC was important in setting standards for future governments in power (even though traditionally, no action has been taken on the committee’s reports), the same way that the Justice Verma Commission report is the one comprehensive handbook for women’s issues today.

So why don’t the Opposition and the government just stop this farce? What will discussing the report in the Monsoon Session achieve which couldn’t have been achieved in the session gone by? PC Chacko has already stated that the text of the report cannot be changed. Will there be a sudden beam of divine enlightenment which will show our Parliamentarians the path to cutting the Gordian Knot? The Opposition should let the current draft report be tabled and issue a press note detailing the parts of the report it takes exception to.  Let it be an example of the disharmony and discord that plagues today’s Parliament and the utter disregard for our constitutional provisions. A flawed report is better than no report at all.

The views expressed by the author are personal

Key Sources:

1)    Report No. -19 of 2010-11 for the period ended March 2010  Performance Audit of Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications ( Ministry of Communications and Information Technology): http://bit.ly/11hQC94

2)    The Supreme Court Order on the 2G Scam, Feb 2012: http://ibnlive.in.com/news/full-text-supreme-court-order-on-2g-scam/226559-53.html

3)    Case Study on the Supreme Court Ruling on the 2G Spectrum Scam: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2048719

4)    Firstpost ebook, The Big Trial: http://www.firstpost.com/ebook_download.php?id=17

5)    Firstpost ebook, 2G scam, Big Trial Big Verdict: http://www.firstpost.com/ebook_download.php?id=32

6)    Firstpost ebook, 2G spectrum auction, did Raja have the last laugh?:  http://www.firstpost.com/ebook_download.php?id=79

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