Wednesday, May 18, 2011

JPC now probing telecom policy under NDA.....The witch hunting started by the BJP will now haunt it....

The JPC set up by the insistence of the BJP and Left now starting to look at all policy changes that happened from 1998 onwards. The 2G “scam” (I have never called it that) has always been a political issue.....from a public policy point of view, there was always a strong justification for what successive governments did in adapting policy changes to the needs of the market. Now this political issue will taint the BJP as much as it earlier did the Congress. As usual....the real truth about the 2G policies will be obfuscated.

Let’s consider what policy changes happened from an public policy prism first. The original telecom policy prescribed a “fixed” license fee model. Basically, telecom operators paid a certain fixed amount as annual license fees.....a sum that was determined by a bidding process. Since the bids had gone very high....and the subscriber base was still very small....telcos had no option but to keep usage pricing very high. When I got my first mobile phone (sometime around 1996-97), the call tariff was Rs 16 per minute. For outgoing and incoming calls! Obviously, this kind of pricing wouldn’t work in a country like India. The mobile soon became a status symbol....people liked to display their mobile phones as a proof of their high “status” in society. Clearly, the telecom policy was a disaster in so far as its ability to increase tele-density was concerned.

The NDA government did the right think in making the license fee revenue-based. After this policy change, telcos paid license fees based on what revenues they made. A small telco paid lesser and a big one paid more. Smaller circles automatically paid smaller license fees than bigger ones. If there were any complaints that spectrum was being “wasted” by a telco because of poor marketing or selling, that accusation wasn’t true. Because the government had already netted a huge amount upfront as “One Time Entry Fee”. The revenue share was only the additional license fees that the government made. This NDA policy gave a huge fillip to the telecom sector. And the NDA must rightfully take credit for it. This was a policy decision.....and policy decisions vest entirely with the political leadership of the country. Even at that time, the CAG criticized the NDA government but apparently, could not put a figure to the “scam”.....the JPC has now made it its goal to set that figure!

The revenue-sharing policy led to the beginning of a huge telecom revolution. By the time the NDA lost power in 2004, the subscriber base had crossed 100 million. Subsequently, the UPA government was faced with the prospect of either increasing the license fees (spectrum fees) or letting them remain low. Clearly, the government chose to let the fees remain low. This decision of theirs helped to continue the boom in the telecom sector. From 100 million or so at the time the UPA took over, the subscriber base has now crossed 800 million (ok....maybe, the real number is more like 600 million). Telecom became a revolution. It earned India kudos at international fora. 600-800 million of its people were “liberated” and economically empowered. They could do business even if they didn’t have office premises....their mobile numbers became their virtual offices. The UPA government’s policy also was right....just like the NDA government’s was. Because it treated telecom as a “basic” commodity on par with roads and diesel and and fertilizers.....and government policy was rightly driven by motives of ensuring its growth rather than earning a quick buck. The government did the right thing by not killing the goose that laid the golden egg. Of course the CAG saw it as another “scam” and this time around, put a ridiculous figure of Rs 1.7 lac crores as the loss to the exchequer. What loss? Worse, this figure was derived from an auction of 3G spectrum.....which is used to offer premium services and hence where pricing can be higher. At least the CAG was consistent in its stupidity. The BJP wasn’t!

Now the politics. The JPC is now going to focus on the decision of the NDA government to change the policy the first time around....from a fixed license fee to a revenue sharing one. It’s not going to be easy to fix charges on the NDA.....after all, in a theoretical manner, one can assert that the fixed license fee policy would have given the government more revenues. In any case, nothing can be proved authentically.....since the old policy was discontinued......but there’s enough dope to pin charges on the NDA. But the NDA shouldn’t complain. They made the first mistake by playing political games with the first CAG report which castigated the UPA government. They should have been wiser then. They should have realized the difference between policy decisions and corruption. Policy changes are not the same as corruption. Now the BJP will suffer the same public perception as the Congress did. And both parties would have lost their position for the wrong reasons.

The reality is that the low pricing of the spectrum was a terrific policy. Credit to that must go to the NDA government first and later to the UPA government for continuing it. Had spectrum prices been raised, telecom density would have been much lower and so many poor people would have continued to remain disenfranchised. Also, it’s not as if the private sector has looted the country in connivance with the government. Most telcos are losing money even now. I was a little surprised to read yesterday that Vodafone has made a small profit of Rs 100 crores last year.....for the first time since it started operations in India. So even the #2 operator has been losing money till now? Reliance has been losing money and that’s well known. Except for Airtel....which also has EBITDA margins of just 30% or one has made a killing from the government’s policies. Telcos have dutifully (and because of competition) passed on benefits of low spectrum charges to the people of India.

People have been made to believe that the new telcos made a killing by first acquiring the licenses cheap and then selling off a chunk in their companies to foreigners. Nothing is further from the truth. It’s true that they sold off stakes to foreign telcos....but all the monies that the foreign companies brought in were invested in the companies....nothing was taken out by the license acquirer. The profit was only notional. New shares were issued to the foreign companies....and the subscription money increased the equity of the companies. Now these telcos will use this money to roll out operations.....and if they make profits in the future.....they’ll probably take decades....they may be able to recover their investments. To repeat, even the likes of Voda and Reliance haven’t been able to turn in profits after being around for 15 years or so. It’s entirely possible that these new telcos with their foreign partners may never turn profitable....and then all the money invested would be lost. But who wants to understand this economic logic? Certainly not the media....which has been a co-conspirator with the BJP in the 2G misinformation campaign.

Yes, it looks like Raja was corrupt (though nothing has been established yet). But his corruption was the old fashioned type. Preferring one private player to another. Advancing dates to suit someone. For this, he may have made the Rs 200 crores being alleged right now. That’s it.....Rs 200 crores. That’s the TOTAL amount of corruption that Raja is being charged for. Let me repeat.....there is no other charge except for this Rs 200 crores....and even that has now been returned back apparently.

The real truth is that a desperate BJP played a political game in charging the UPA with corruption over the 2G issue. There was no corruption except for small bits here and there (that much corruption exists in almost all government contracts....and has existed under all governments.....UPA and NDA). It intentionally confused policy decisions with corruption. It latched on to the CAG report....which was totally flawed. The CAG had no business to comment on policy matters. They can comment on process flaws and lack of processes. But not on policies. But now that the BJP has gone down this path, it will itself have to suffer the ignominy of being tainted in the same way as the Congress. And I dare say....the JPC will put a higher value to the loss of revenues on account of the NDA policy change than the ridiculous number of Rs 1.7 lac crores being pinned on the UPA. The BJP asked for this it has no options.

No comments:

Post a Comment