How high our 2G dudgeon?
Posted on December 16, 2010 | Author: T K Arun | View 220 | Comment : 1
Focusing exclusively on the 2G scam ends up in losing sight of the systemic flaws that make corruption endemic. The 2G scam lost the government some money and was unfair to some telcos but it hugely benefited the people at large. For the PM in 2008, and the Left, it was more important to pursue the inclusive agenda than to see off a corrupt ally.
Why really all this uproar over the 2G scam? Has the Prime Minister lost his moral authority because he allowed Raja to get away with it on his watch?
Moral outrage without context is probably good for the soul but of little redemptive value. The biggest scam is the washed out winter session of Parliament.
Essential bills languish, the government is not held to account on specifics, Parliament does not play its vital role.
The biggest con is that telecom companies have mesmerised all and sundry into accepting that policy which is unfair to some of them is a scandal, even if it has immensely benefited the people at large.
The initial licences for mobile telephony were issued to companies that employed the GSM technology.
They cried foul when the government allowed companies using the CDMA technology, Reliance and Tata, to enter mobile telephony.
Reliance bent the rules to convert a fixed line licence with some limited mobility into fully mobile licences. Tata rode on Reliance’s coattails. Was this a scam?
Did the ruling politicians of the day make money — Arun Shourie’s personal honesty is no guarantee that the movers and shakers in the BJP-led government did not make money, just as Dr Manmohan Singh’s personal honesty is no guarantee that others in his government do not make money — to change the policy?
The GSM players certainly believed so. But Reliance’s entry into mobile telephony was the tipping point for Indian telecom: it brought down the cost of owning a phone to . 500 a month and set off a price war that brought tariffs crashing down and made phones affordable by fishermen, plumbers and carpenters.
In the absence of that particular scam, phones would have remained a luxury affordable only by the upper classes.
Reliance’s entry was unfair to incumbent players, but benefited the people of India.
The 2008 grant of new licences rigging a queue, was unfair to some telecom companies.
But these additional licences intensified competition, unleashed another price war that continues today, bringing India’s tariffs down to the lowest in the world, half a paisa for one second on the phone. Ever more people now own and use phones.
So was there no scam at all? Of course, there was. Rather, there were two. One was arbitrary allocation of licences, the other was failure to put in place a special regime to tax away the capital gains of those who got licences only to sell them off at a huge premium.
What about the CAG’s estimate of a . 1,76,000 crore loss to the exchequer? This is questionable on two grounds.
One, it assumes that the revenue assumptions that prompted companies to bid for spectrum for value-added, third-generation mobile services could be extrapolated to spectrum for plain voice calls. Two, it legitmises auctioning spectrum off at a high price as sensible policy.
High spectrum charges either make calls more expensive or erode a telecom company’s ability to invest in and expand vital service capacity. Neither outcome is pro-people or pro-growth.
Fast roll-out of high-speed data networks and low tariffs will boost India’s growth. A networked economy will increase the tax department’s tax collection efficiency.
Faster growth combined with more efficient tax collections yield tax revenues far larger than spectrum auction proceeds.
Europe and the US auctioned 3G spectrum and companies paid up billions of dollars. Some of them nearly went broke and 3G adoption is limited in these regions.
Korea and Japan made spectrum available cheap and more than 90% of their subscribers are on 3G.
India should aim for greater adoption of the technology, low costs and fast roll-out.
The overall social and economic benefit and state revenues over time all would be greater from a policy of low spectrum charges than from high upfront spectrum charges.
But without auctions that lead to high costs, how can you make a fair allocation of spectrum to different companies ?
The more relevant question is, if auctions lead to costly spectrum and growth-depressing dynamics, isn’t that unfair to the people?
Given a choice between being fair to the people and being fair to companies, priority should be to being fair to the people. Draw lots, that is fair.
So, the 2G scam is essentially about being unfair to some telcos and loss to the exchequer of undeserved capital gains.
Has the PM lost moral authority by allowing it to happen under his nose? The Left was the DMK’s ally and outside supporter of the government at the Centre in 2008 when the scam took place.
It doesn’t admit to having lost any moral authority. The PM headed an unwieldy coalition government.
It was more important for the country that the government survived its term, implemented as much of its inclusive agenda as it could than it punished an errant minister and sank under the weight of righteous morality.
Today, the Congress’ and the PM’s hands are stronger. He would lose moral authority if he fails to initiate action on the root of the scams: use of corruption as the principal means of political funding.