Saturday, November 19, 2011

Another 2G chargesheet…..another round of politics…..another round of misdirected investigations

As was bound to happen, the 2G prove has now widened to the pre-UPA era. The CBI has filed a new chargesheet – this time implicating the BJP. The CBI is alleging irregularities in the way spectrum was handed out in the time when Pramod Mahajan was the Telecom Minister. Pramod Mahajan has not been named himself – at least not yet –because he’s already dead. Lets get ready for another round of bloody politics!

But before we go into the specifics of this new issue, its worth summarizing all that’s happened on the 2G scam till now. There have been three distinct issues involved. 1) The first was about the “presumptive loss” of giving away spectrum free. Even though it is government’s prerogative to decide whether it should give spectrum free or charge for it, the CAG decided to still impute a value to the notional loss. Since the CAG investigation was for the period when UPA was ruling, the notional loss calculated was only for that period. Had it estimated the presumptive loss for the BJP ruled period, that sum would also have been some similar staggering number. The CAG – by choosing to put out a highly exaggerated loss number – sensationalized the 2G issue into a scam of never-before proportions. And made it political. But if we take out the issue of presumptive losses, the second issue surfaces. 2) The issue of the real scam. The alleged quid-pro-quo between DB Realty and Kalaignar via a circuitous route. The supposed connivance of Raja in allowing ineligible companies like Swan and Unitech to bid. So far, the only charge against Raja is the Rs 200 crores paid by DB Realty to Kalaignar. Nothing has been found to link Raja with any pecuniary benefits made from Unitech, Swan etc even though there is a supposition that there must have been a quid-pro-quo here too. 3) The third and utterly ridiculous issue was about new license winners “selling” equity to new global players and “making a profit”. A ridiculous charge made by people who do not understand even the basics of business – “selling” equity means the seller takes money home and makes a profit. “Issuing fresh equity” means the money comes into the company and is used for network roll-out, operating losses, etc. The original owner has a lock-in period and in all likelihood (as is the case now), the original owner could make a loss if it exited after the lock-in period. The only scam was point 2 above, but what has grabbed the most attention were points 1 and 3.

Now let’s come to this present issue. There are two parts to this issue. The first is about how the base level of spectrum allotted to each operator was enhanced from 4.4 Mhz to 6.2 Mhz (Spectrum was given free during BJP period also). The second is about the money charged for further increases in spectrum from 6.2 Mhz to up to 10 Mhz – allegedly less was charged than should have been.

The first part is clearly about government policy. As mentioned earlier, spectrum was given free when the BJP’s telecom policy was first announced in 2001. Many people don’t realize this – so it is worth clarifying. New telecom operators pay two types of fees. One is an “entry fee” which was auctioned in 2001 and for which the value was Rs 1650 crores for a pan India license. This license came bundled with “free” spectrum of up to 4.4 Mhz. Beyond this also, spectrum was free – but the operator had to “earn” it – by showing that its subscriber base had increased and hence it needed more spectrum. The other fee is the “annual license fee” which is a % of revenues earned by the operator. There is no separate fee for the spectrum. There never was one. 2G spectrum was always free.

The decision to give 4.4 Mhz bundled with the license was a policy decision. Likewise, the decision to enhance it to 6.2 Mhz was a policy decision. There is nothing wrong with it. If 4.4 Mhz spectrum given free was not a scam, then 6.2 Mhz given free is also not a scam. So the BJP should relax. But if 4.4 Mhz given free during BJP rule was not a scam, then 4.2 Mhz given free during UPA rule is also not a scam.

The second part is about the way “additional” spectrum beyond 6.2 Mhz was given away. The CBI alleges that this spectrum was to be charged for at the rate of an incremental 1% of Adjusted Gross Revenues (AGR) till 8 Mhz and at 2% beyond 8 Mhz – what it calls “normal prudence”. Apparently, Pramod Mahajan and the then Telecom Secretary Shyamal Ghosh decided to charge only 1% extra beyond 8 Mhz as well. This looks like a scam. This was not policy. This appears to be an “adjustment” of policy – supposedly to suit the interests of some business houses and some politicians and bureaucrats. This is akin to Raja’s tricks – playing with approved policy to dole out (and receive) favors to (and from) a few corporates. If Raja was accused of the Rs 200 crores scam, the BJP ruled scam is of the order of Rs 508 crores.

The focus of the investigations should be on why Pramod Mahajan decided to charge only 1% beyond 8 Mhz; and why DB Realty gave a “loan” to Kalaignar TV at all (both look like scams). There is no point in probing government policy – giving bundled spectrum free with the license. Like I mentioned earlier, it was given free in 2001. It was given free in-between. It was given free in 2008 also. If there is any presumptive loss post 2008, then there was presumptive loss from 2001 onwards. If there was presumptive loss in giving out free spectrum, then there is presumptive loss being incurred every single year on every item of subsidy – on diesel, LPG, Kerosene, fertilizers, food programs – all of this is a presumptive loss running into lacs of crores of rupees every single year. Then we should call socialism itself a scam! Then even change in tax policy – reducing corporate tax rates – can be considered to be a case of presumptive loss – and thus a scam. The problem of course is that it is impossible to calculate the gains made from tax cuts; the increase in economic activity and the higher tax collections as a result of that. There was also better compliance when tax rates were reduced; hence again tax collections increased. These “extra gains” are never netted off from the so called presumptive losses. Likewise in the telecom business, the extra gains relate to the growth in the telecom sector as a result of low prices from 2001 to 2008 and then since 2008. Just for the record, the number of mobile connections in early 2008 was just around 275 million. That meant that only the top 25% of India’s population (the so called middle class) had access to this revolutionary product. Today, that number is upwards of 750 million. It’s only post 2008 – and entirely because of the cheap prices – that the truly underprivileged got hold of the mobile phone for the first time.

Unfortunately – and entirely because of the CAG’s sensationalism with presumptive losses – the investigations have become totally politicized. If we take the presumptive losses out, then the maximum possible loss (even this is presumptive) is the figure that RP Singh, former DG of Audit (P&T) put out – the inflationary impact on the entry fee. A figure of Rs 2645 crores. Further, instead of probing Raja’s change of rules to suit himself, the probe is sought to be directed towards how Chidambaram was involved in the decision to give spectrum free. I think the Congress is being unnecessarily coy about this. It should accept that Chidambaram and Raja discussed pricing of spectrum. Chidambaram wanted to auction it. Raja wanted to give it free as per past practice. Even TRAI had recommended it be given free so as to make the field even for the new telcos. The cabinet decided to go with Raja’s views. Chidambaram was overruled. That’s all. Instead, it is being projected as if Chidambaram is somehow responsible for the decision to keep spectrum free.

My sincere wish is that the BJP should not be hauled up for the enhancement of the base spectrum from 4.4 Mhz to 6.2 Mhz. But it should be for the lower fees charged for additional spectrum. There should be no politics in this investigation.

The real truth is that India’s most successful policy ever – the 2G revolution – has been unnecessarily sullied as India’s biggest scam. All this because of the CAG. In my mind, there is no question of any presumptive loss at all. The real scam was when Raja changed the rules of the game. And similarly when Pramod Mahajan reduced the incremental % to be charged for additional spectrum. These should be investigated; that will yield some results. And then we will find that the scams were not that big at all……

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