On 2G, the policy dilemma remains

And for that, the CAG, the court and the media must share responsibility

The din on 2G has subsided. It is time to reflect. Is the road ahead, after the pronouncement of the Supreme Court, any clearer now? The unintended axis of the report of the CAG, the public interest litigant and the media made informed debate a victim. Did those who cried foul fully understand the complexity of a sector that was nascent? We were traversing virgin territory. There were no examples to learn from. Other nations were also learning from their mistakes.

The NDA put in place a roadmap for migration when a troubled telecom sector could not honour its commitments. An auction in 2001 determined the price of Rs 1,658 crore for entry in a regime where spectrum was bundled with the licence. Thereafter, free spectrum was bundled with the licence at that price for those who wished to enter the market to provide telecom services. In 2001, tele-density was 3.58 per cent. For the uninitiated, it was a risky venture. Our domestic players were inexperienced. The government had no means to analyse the potential for profit over the 20-year term of the licence. Yet those who received the licence, in 2001, 2004 or in 2006, were, in retrospect, enriched. These licences expire in 2021, in 2024 or in 2026, as the case may be. Should public servants who gave these licences at that time be prosecuted for giving away a valuable resource for a pittance? Of course not.

Much before 2026, new technologies may emerge that may further enhance the profitability of these licencees. Should the government be blamed for not anticipating the emergence of such technologies? There is in place a regime in which the government shares in the profits through increased spectrum usage charges as the customer base increases. An annual charge in the form of licence fee, again linked to the customer base, also accrues to government.

In 2007, tele-density was 18 per cent, which reached 78.66 per cent by March 2012. Should the government have changed the rules by unbundling the spectrum from the licence? The telecom sector was impacting lives positively. The benefits of a low entry fee with spectrum bundled with the licence was paying dividends. The old regime continued. Several fresh licences were granted.

Realising the potential of the sector, many new players sought licences. There was not enough spectrum to go around to satisfy increasing demand. The benefits of the telecom sector were reaching the "aam aadmi".

It was possible then to say that spectrum should be delinked from the licence and be auctioned. That would have fetched government resources. Would the sector then have grown at the same pace? I don't know. Had that been done, the resultant resentment between telecom operators would have resulted in court wrangles. The new ones would have argued that government, by introducing a non-level playing field, was throttling competition. Allegations of undue favours being bestowed on existing players would have been made. After all, how can one have two regimes in the same 1800 mega hertz band with the new players paying for spectrum through their nose and established players having got it for free? For doing that, an overenthusiastic court could have ordered an investigation, and consequent thereupon, prosecution. The facts would have been irrefutable. Prosecution of the policymaker was inevitable.

TRAI opted for a level playing field without indexation. Bureaucrats differed. Government could have been advised indexation of the 2001 price even while bundling spectrum along with the licence. That was not done. Licences were granted without indexation.

Between January 10, 2008, when the new players were granted licences under the old regime, and August 2010, not much happened except for a dubious single petitioner in court, whose antecedents were allegedly suspect. The petition failed.

Then came the report of the CAG, who calculated presumptive loss to the exchequer of the order of Rs 1,76,000 crore. All hell broke loose. Had the spectrum been auctioned, the government would have been enriched to that extent, was the refrain. The electronic media latched on to the story. It hysterically guided public opinion without giving space to possible explanations or alternative viewpoints. The court too felt that crony capitalism had led to this alleged loss. The investigation of the CBI was being monitored by it. The rest is history.

All licences granted in January 2008 were cancelled. The policy of first-come first-served was struck down. Unsavoury deals were alleged. Objections were raised about trading in licences to become rich overnight. The public applauded a pro-active court. The then minister reached Tihar jail.

But investors who wished to contribute in the telecom revolution taking place and benefit from a vast market, and who had purchased the licences with equity, found themselves without remedy. Their investments floundered. Bank loans could not be paid. The market started losing confidence in the sector. Those who wished to roll out did not, because of the uncertainty caused by the judgment. They had invested for four years (2008 to 2012), suddenly to have their business prospects frozen without any finding of any individual act of culpability. They assumed that the government was at fault and decided to sue the government under the Bilateral Investment Promotion and Protection Agreement (BIPA).

We are in the process of auctioning the spectrum of the cancelled licences along with additional spectrum. The sector is under heavy debt. Unpaid loans are at around Rs 2 lakh crore. Banks are unwilling to help an already beleaguered sector. The unserviced loans on account of 3G auctions have not helped matters.

The policymaker is faced with a dilemma. With the Supreme Court judgment in place, there is no alternative to auctions. If the reserve price for the auction is kept low to encourage telcos to bid, we might face prosecution. Some judge may think we are favouring telcos. If we keep it high, competitive bidding will be the casualty and the environment in the sector, and for the economy in general, will further deteriorate. We must thank the CAG, the court and the media for this dilemma.

I am not in any way suggesting that the courts should not prosecute wrongdoing and the corrupt. They would be failing in their duty if they did not; but only after a thorough investigation and upon determining individual culpability. A blanket order putting at risk investment of billions of dollars, and that too of entities who were not partners in crime but victims of the first-come first-served policy, is suspect on several scores. It punishes the innocent and the unaware. It tars all with the same brush, both the culpable and those who entered the sector much after the auction. Then there were bands for which there were hardly any takers. The fact that investments continued for four years before the court stepped in is a relevant factor in moulding relief. That, too, was not considered, especially in the case of those who invested later.

Fundamentally, the SC is hardly the appropriate forum to cancel all licences by setting aside policy without an inquiry into individual culpability and the circumstances of the investor in each case. To save returns to the exchequer, we may have jeopardised much larger sums through which the exchequer would have continued to benefit. In a complex socio-economic environment, the entire canvas of which is never before the court, policymaking is best left to the executive. Within policy, if individual decisions are vulnerable, courts must have the last word.

As far as the concept of "presumptive loss" is concerned, may I humbly suggest that it is alien to non-market mechanisms for empowerment or to achieve socio-economic objectives? Take land. Should land be auctioned in a city like Delhi to set up schools? The answer is an emphatic "no". The private sector won't invest and if it does, the cost will be passed on to parents. Schooling will then be accessible only to the rich. The CAG could well calculate "presumptive loss" for all such allocations. The same applies to land allotted for hospitals at institutional rates or setting up industrial townships through subsidised allocations. Market mechanisms are totally irrelevant when resources are used to serve a larger purpose, especially for the underserved, unserved or marginalised.

I have another objection. A single element in transactional mode can never be analysed to calculate either "loss" or "presumptive loss". The losses or gains of all elements in the transaction need to be analysed. In the context of telecom you need to calculate the revenues that accrued to government, the resultant investment, the jobs created etc. Added to that, the unquantifiable gains through empowerment, which we may call "presumptive gains".

Besides, the market has a unique way of reacting. Had you adopted auction for allocating spectrum, the market may not have reacted favourably. Or, the pace of tele-density may have been much slower. Economists often get the market wrong. The success of a particular policy prescription is always a gamble. To charge the government with not preferring auction for allocating a public asset is not just ignoring the unpredictability of the market but arrogating to yourself a role you are not necessarily equipped to perform. An accountant should remain an accountant and calculate all losses that accountancy permits.

Lastly, losses should only be calculated after the balance sheet reflects all elements of the transaction. Suppose a company sells a new product below cost and carries out a media blitz to promote it, the expenses will far exceed the returns. Should the directors of such a strategy be liable? Maybe their strategy succeeds in the long term and they rake in profits. It may well fail. That's a business risk the company takes. The performance audit cannot cover such situations. That is policy.

We have now charted a new course. I hope we succeed. If we do not, we will have ourselves to blame. The story of a sunrise sector would have soured. The country will have lost and there will be none to prosecute.

The writer is Union minister of human resource development and minister of communications and information technology

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