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BW Businessworld

Business And Power

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It is a boom time for the media. Scandals erupt almost every day. If the raj of Raja comes to an end, there will be a Rani to provide relief. One of them may even be punished for their wrongdoings once in a while. This may sound like business as usual; but the frequency of scams has led to a fear that there is a qualitative deterioration, that there are so many sunken ships that it is becoming impossible to steer the boat of India in the choppy waters.

However, even if it is granted that corruption is endemic, it would be wrong to infer from the current scandals that the level of corruption has gone up. Even the worst critics would agree that only a small proportion of scandals is discovered. The rate of discovery varies. Sometimes there is a spate of revelations; at other times, nothing much comes to the surface. Just the fact that this happens to be a rich period for disclosures tells us nothing about the general level of corruption. So, while it may be justified to stay permanently depressed about the condition of Indian politics, to feel specially suicidal about the current state of affairs would be overdoing it a bit.

Starting from the premise that corruption has increased, many theories are being propounded about the reasons. One blames the worsening state of affairs on reforms. It postulates that as long as controls were in place, there was a distance between politicians and businessmen: even to meet anyone in the government, businessmen had to get a pass and form a queue outside the august functionary's room. That was only the beginning; getting a licene, or obtaining a concession, took years. The very effort involved in getting anything done discouraged people from trying. However, this theory wrongly assumes that just because those in power looked down on businessmen from the heights, they did not take any money. Corruption was at least as rampant before the reforms as after; in the sectors that underwent reforms, it has certainly gone down. Since there are no industrial licences any more, no bribe has to be paid for them. If there is corruption today, it is in those areas that have escaped reforms.

Coming specifically to the allocation of spectrum, it is well known that since the costs of supplying wireless telecommunications services are a fraction of delivering the same services on wires, there were enormous profits to be made by moving from wires to wireless services. But wireless spectrum is in limited supply, and must be rationed out amongst telecommunications operators. If something is in short supply, the best way of allocating it is by auction. Economists have worked out the most efficient and equitable ways of conducting spectrum auctions. But all that knowledge, so readily available, was pointedly ignored in this country. Equitable allocation did not suit those who controlled spectrum; they themselves wanted to profit from it. That is why the first allocation was made by the National Democratic Alliance in an extremely messy way. The conditions were less messy under its successor, the United Progressive Alliance, because the allocation was left solely in the hands of the telecommunications minister; the Prime Minister and the rest of the government kept their hands clean. The allocation was no less inequitable; but since most applicants got something, the voices against it were not too loud.

For all the noise being made about it, the telecommunications story is dead. Marginal adjustments may be possible, but it is not possible to take back spectrum from operators in business and reallocate on grounds of equity. There will be another telecommunications minister; unless he too emerges out of a political bargain within the UPA, he is likely to be a cautious man and will keep his hands clean. But there are many areas of decision-making where the UPA government's methods are just as arbitrary as they have been in telecommunications. Environment comes readily to mind. No one knows what project the environment minister will stop next, how long for, and on what grounds he will give a green signal. Mining leases are another area of political uncertainty; the fate of Karnataka's chief minister is a graphic illustration.

In these and such areas, it is possible to devise efficient and equitable rules. We are ruled by someone who once made his name as a brilliant economist. Even if he has forgotten economics, he only has to call them, and the world's best economists will make their way to his doorstep. If his ministers continue to make arbitrary decisions that profit the undeserving few, the reason lies in those profits and whom they go to, and not in ignorance of what is best.

(This story was published in Businessworld Issue Dated 03-01-2011)