The 2G controversy - Atasi Das

Parliamentary proceedings have been stalled since the beginning of the winter session, as the Congress-led UPA government has refused to give in to the opposition demand for a Joint Parliamentary Committee (JPC) probe into the 2G scam. Finance Minister Pranab Mukherjee recently announced that a Parliamentary Public Accounts Committee (PAC) will examine the Comptroller and Auditor General’s (CAG) 2G scam report and necessary governmental action will be based on that; the PAC is headed by a ‘leader of the Opposition’. The Central Bureau of Investigation, the Enforcement Directorate and the Tax department are also investigating the 2G spectrum allocation scam.

CAG report: Main points

• The projected loss to the exchequer from the 2G spectrum allocation to 122 circle-wise licenses and 35 dual - technology licenses in 2007-08 is Rs 1,76, 645 crore
• A Raja, former Communications and Information Technology Minister ignored the advice of the Prime Minister, the Law Ministry and the Finance Ministry in the 2G spectrum allocation dealings
• The spectrum should have been auctioned to reflect its true market value; new entrants got 2G spectrum at throwaway prices,
• Procedural lapses; cut -off dates for applications were advanced arbitrarily by a week, incontradiction to government rules
• The spectrum allocation was arbitrary, inequitable and non-transparent
• Undue advantages were offered to Swan and Reliance Communications 

Supreme Court notice
In November 2008, the former Law Minister and Janata Party leader, Subramaniam Swamy had sought PM Manmohan Singh’s permission, as per procedural rules, for prosecuting A Raja, then a serving minister, on the 2G scam. Almost 16 months later Manmohan Singh had responded and termed Swamy's plea ‘premature’ as the CBI was already probing the case. In the meantime, Swamy had appealed to the Supreme Court, after his plea for the ‘sanction’ had been turned down by the High Court. The Supreme Court dubbed Singh’s inaction ‘worrying’. A PMO affidavit filed in this regard has stated that due consideration was given to the Swamy plea. Attorney General GE Vahanvati and Solicitor General Gopal Subramanium are representing the case for the Prime Minister and the Department of Telecommunications (DoT) respectively; KK Venugopal and Additional Solicitor General Haren Raval will stand in for the CBI.

Analysis
The 2G spectrum was awarded by DoT to nine telecom companies in 2008, with the entry fees being pegged at 2001 prices - the undervaluation is reflected by the growth of the mobile subscriber base from 4 million in 2001 to 350 million in 2008. The government suffered an estimated loss of Rs 1,02,498 crore and Rs 37,154 crore respectively from the issuance of 122 new 2G spectrum licenses and 35 dual technology licenses (calculated on 3G pricing terms) during Raja’s tenure. Allowance of spectrum above the contractual limit of 6.2 MHz to the existent companies led to a projected loss of Rs 36,993 crore.
Swan Telecom, ineligible for the selection process, as per the Indian cross-holding norms (since at the time of application Anil Ambani’s Reliance Telecom held over 10 percent stake in the company) was the first company to get the spectrum allocation, in violation of the ‘first-come-first-serve’ (FCFS) policy. The Anil Ambani group received windfall gains from the cheap telecom licenses disbursed in 2008 and also from the 2007 dual technology policy.

Licensees Unitech and Swan Telecom soon sold 45 per cent and 60 per cent of their stake to UAE based Etisalat and Norway based Telenor respectively, for a hefty sum. Their company valuation rose, without any addition to the subscriber base. Stel and Datacom also engaged in stake sale to Baharian Telecom and Videocon Mobile respectively. Other licensees include Tata Teleservices, Idea Cellular, Loop Telecom, Shyam Telelink and Spice.

Raja had brushed aside PM Manmohan Singh’s suggestion for an auction process in view of the ‘inadequate spectrum’ and the huge number of applicants for the spectrum allocation. The Ministry of Finance was also not consulted by DoT in the spectrum allocation or in the price fixation issues, as envisaged by a 2003 Cabinet decision; a Ministry of Law and Justice suggestion for consulting the Empowered Group of Ministers (EGoM) and the Attorney General for ‘fair’ and ‘equitable’ handling of the applications also went unheeded. Out of the 122 licenses awarded by Raja in 2008, 85 went to companies, which provided false information.

In hindsight, the Telecom Regulatory Authority of India (TRAI) has now recommended that 2G licenses for Etisalat, Sistema Shyam, Uninor, Videocon and Loop be scrapped in selective circles, where they have failed to meet the terms of the contract; in effect, DoT may not cancel those licenses but may extract the augmented market value from the companies.
Human Resource Development Minister Kapil Sibal is currently heading the Telecom Ministry after A. Raja resigned on the advice of Dravida Munnettra Kazhagam supremo M Karunanidhi on 14 November. The 2G scam has affected investor confidence and pulled down the Sensex in its aftermath.

Raja on his part has denied any wrongdoing and has clarified that; he had distributed the 2008 licenses as per the National Telecom 1999 policy regulations. He claims to have successfully done away with the telecom sector cartel, increased its competitiveness and lowered tariffs. Media reports state that successive telecom ministers like Pramod Mahajan, Arun Shourie and Dayanidhi Maran like A Raja had continued with the legacy of over allotment (above 6.2 MHz).

Conclusion
The Indian telecom industry is experiencing robust growth at this moment, with a rural tele-density of 28.46 per cent and total tele-density (for both rural and urban areas) of 60.99 per cent as on September 2010; the lost revenues from the 2G spectrum sale could have wiped out nearly half of India’s fiscal deficit.
The CBI will file its charges by March 2011 and we hope that, justice will override coalition dynamics, and those who siphoned off the national exchequer for vested interests and personal gains will be brought to book.