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BW Businessworld

Spooked And Paralysed

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If there is one event that has obliterated all trace of constructive decision-making in India it is the 2G scandal. Former Cabinet minister and present Tihar Jail inmate, Andimuthu Raja, has succeeded in paralysing the government in ways that no other politician has. His selling spectrum at artificially low prices on a ‘first-come-firstserved' basis has not only landed him in jail since February 2011 — which is of little consequence to anyone except himself — but also put an end to all sensible policymaking.

A stellar example of senseless, risk averse posturing is the recent note of the Telecom Regulatory Authority of India (Trai) regarding the auctioning of 2G spectrum. Nothing could be more absurd and deleterious to the growth of mobile telephony in India.

Let's step back a bit. On 2 February 2012, in response to writ petitions filed by Subramanian Swamy and others, a two-member Supreme Court (SC) bench comprising Justices G.S. Singhvi and A.K. Ganguly scrapped mobile network licences issued after 10 January 2008. After making a somewhat doubtful case that any alienation or transfer of all scarce natural resources owned by the State must necessarily be done through auctions, the learned duo went on to declare 122 mobile licences illegal and had them quashed. They also opined that the cancellations must be operative in four months; and that within two months of the judgement the Trai must recommend how to grant licences for re-allocation of such 2G spectrum by auction, as was done in the case of 3G.

On 23 April 2012, J.S. Sarma, chairperson of Trai, submitted the authority's recommendations. Shorn of tedious and repetitive details, Trai has suggested a reserve price of Rs 3,622 crore for each megahertz (MHz) of the 1800 MHz band pan-India spectrum. This is almost 10 times the January 2008 price at which 2G licences were bundled with 4.4 MHz spectrum under Raja.

Moreover, Trai has suggested that bundles of 5 MHz of spectrum be allotted for each auction. If the government were to follow these recommendations, pan-India spectrum in the 1800 MHz band will command a reserve price of Rs 18,110 crore. This is absurd on two counts. First, the price per MHz is ridiculously high — not only compared to what was paid in January 2008, but also in relation to the economics of the mobile telephony business in India. At that price, it will be almost impossible for operators to make the profits needed to ensure an adequate return on capital. Second, the spectrum size is inadequate, which arises out of bundling bids into 5 MHz lots. In plain English, this is a very high reserve price for a relatively small bundle of spectrum. Why so? 

There is no reason to believe that Sarma is an unlettered man. That brings me to an interpretation which might accurately describe the state of play for all key government decision-making processes since Raja and others were sent to the cooler.

Today, the two cardinal norms among bureaucrats in Delhi are: a) "It is seriously unsafe to stick your neck out and say the truth, even if it is ultimately beneficial for the nation", and b) "Doing the right thing will get you no kudos. Instead, you can get whacked by the Central Bureau of Investigation, the Comptroller and Auditor General, the Central Vigilance Commission or the SC. Doing nothing is safer. You will still get promoted, and peacefully receive your pension." Sarma is very close to retirement. He has seen a Cabinet minister and a secretary to the Government of India languish in jail. He doesn't want to rock any boat, real or mythical.

So the best tactic is to recommend a high reserve price. That way, no one can blame Sarma for being ‘soft' on the industry. By being holier than God, he has removed the Damoclean sword hanging over him and can expect to live a quiet retired life after 37 years of service. That the recommendation will poleaxe the industry is his successor's problem.

But his successor can't be expected to make the recommendations more sensible. That will not only change a high government revenue outcome, however improbable it might be, but also be construed as being ‘business friendly' — which is not what any civil servant wants to be today. Changing the decision will need huge political guts, which is abundantly absent in New Delhi. No doubt, mobile telephone providers and subscribers alike will be shafted by the Trai pronouncement. Telecom will be badly hurt. But the babus will be safe. That's what matters today more than anything else. So much for India's manifest destiny!

The author is chairman of CERG Advisory.
omkar(dot)goswami(at)cergindia(dot)com

(This story was published in Businessworld Issue Dated 21-05-2012)