This whole 2G scam broke thanks to a report published by the Comptroller and Auditor General of India, one Mr. Vinod Rai. Here’s what Wikipedia has to say about Mr. Rai:
As Comptroller and Auditor General of India, Vinod Rai has consistently hit the headlines for his unforgiving audits, ranging from the scathing report on the shoddy preparation for the 2010 Commonwealth Games to the latest on spectrum allocations for second generation (2G) telecom services. Bureaucratic grapevine suggests there was quite a bit of pressure on Rai to dilute the 2G report but he held fast, merely asking his people to check for unnecessarily harsh or unfair language. The report ripped apart the government, even pointing a finger at the prime minister for arbitrarily giving away spectrum, a valuable and limited national resource. The CAG report said the ultimate loss to the exchequer could be as high as Rs 1.76 lakh crore.
That figure of Rs. 1.76 lakh crore got the media all excited. This was a fantastic opportunity for sensational journalism which every magazine, newspaper and TV channel capitalized to the hilt. Thanks to the Internet, the CAG report is available to all. I downloaded the report and read through it with a view to forming my own opinion. Here is what I found.
The CAG says there was a “presumptive loss to the exchequer” (more on this in my next post) due to the decision not to auction spectrum, but he does not delve into the question of was there any gains to compensate for the loss (as an auditor, he does not have to). Kapil Sibal explained in subsequent interviews with the media that the gains were in the nature of social benefits that accrued from increased mobile penetration.
Q: So you are saying that the methodology is wrong therefore the conclusion is wrong?
A: There are two things. One, in policies of this nature what we need to do is maximise public welfare and not maximise revenue, that’s the underlying philosophy of the 10th Plan.Q: So the government wasn’t seeking to maximise revenue. It wanted to spread tele density?
A: That is exactly what we wanted to do; spread tele density, ensure that there is money in the pocket of the consumer, that the cost of telephony is much less for the consumer, there is greater competition in the market, the cost of having a mobile phone is less. All these objectives are for public welfare. Ultimately remember this, technology is not for revenue earning, technology must reach people and reach people at a cost that helps in their welfare.Q: And you are saying that incoming to an estimate that the loss could be as much as Rs 1.76 lakh crore, the CAG has overlooked these issues?
A: Absolutely. He has overlooked the policy framework of the 10th document, which is what was been followed. Second is the issue of methodology which I have explained in mathematical terms.Q: At your press conference on Friday the 7th, you said first that the realistic figure for the loss was something slightly over Rs 17,500 crore, but in the very next breath you said there was no loss at all. Which is it, a loss or no loss?
A: You can calculate losses without reference of benefit. In a balance sheet what happens, there is a cost and there is a benefit. In every policy framework there is a cost and there is a benefit. If you look at the benefits to the consumer, they far exceed the revenue loss.Q: So what is your position? Is there a loss or not?
A: My position is if you don’t take the benefits you can calculate the losses to any extent you want. But if you look at the benefits, there are no losses.- 2G scam: No public loss to exchequer, says Kapil Sibal, Moneycontrol.com, Jan 11, 2011
Two things became clear to me when I read the above interview. Firstly, the decision not to auction spectrum was a policy decision of the Govt. of India. This was not something the Raja did on his own, because someone bribed him to do it. Secondly, the media (as represented by Karan Thapar) was not happy to hear such a solid defense (the last two questions shown above are nothing but “badgering the witness” type of questions in this trial by media where the media is the accuser, judge, jury all rolled into one and the accused is presumed guilty until proven innocent ).
Was the “public welfare” that Kapil talks about imaginary? We all know that in our country, even the poorest of the poor carry mobile phones, hence Kapil Sibal is not wrong in talking about public welfare.
Kapil Sibal is referring to the 10th Plan. I downloaded the relevant sections of the 10th Five Year Plan and here is what I found:
8.5.37 Telecommunications is one of the fastest growing sectors in India. However, viewed in the context of global growth patterns and indicators, the sector is still in the early stages of development.Our tele-density was only 4.01 as compared to the global average of 32.78 (December, 2001) and 24.98achieved by China…Keeping this perspective in view, the sector needs to be treated essentially as an infrastructure sector for the next decade or so. Once the required tele-density is achieved and the necessary support network has been created, the sector could be treated as service sector.
8.5.38 With a view to ensuring optimum growth in the coming years, Government’s broad policy of taxes and regulation for the telecom sector has tobe a promotional one. Mopping up of resources or revenue generation by the Government should not be a determinant of the policy governing the sector.The incidence of licence fees in the form revenue share and spectrum charges has to be guided by this principle…
Furthermore, there is a “box” in the 10th Plan specifically addressing Spectrum Policy, which begins as follows:
Box 8.5.7
Guiding Principles – Spectrum Policy• Spectrum policy needs to be promotional in nature; revenue considerations playing a secondary role…
So, Kapil Sibal is not talking through his hat. There is a clear line of policy reasoning behind not auctioning spectrum.
Furthermore, this is not the first instance when the Govt. of India incurs loss to exchequer in the interest of public welfare. Think diesel subsidy where the loss (Rs. 70,000 Cr in 2008) is carried by the public sector oil marketing companies on behalf of the govt. of India. Think fertilizer subsidy (Rs. 1.17 lakh Cr in 2008-09) where the loss is carried by the fertilizer companies. Also remember that agricultural income is tax-free in India.
To summarize, here is a situation where an auditor says “the govt. left money on the table” and the govt. replies “we wanted to increase mobile penetration in line with the 10th Five Year Plan recommendation”.
Where is the scam here?
In the next post, I will analyse the figure of Rs. 1.76 lakh crore loss to exchequer.
In a recent interview to LiveMint, Mr. Rai says that policy formulation is the governments prerogative and he auidts only policy implementation:
“Are you empowered to review government policies?
There is nothing which forbids us and nothing which allows us.
Sounds like a riddle. What does that mean?
We believe that policy formulation is the prerogative of the government. We do not interfere and I do not think we have ever transgressed into questioning the policy, but once the government formulates the policy, it is our automatic legal mandate to audit the implementation of the policy process. And that’s what we have been doing.”
Yet, the CAG report has challenged the govt policy of not auctioning spectrum in 2008 by saying said policy has resulted in loss of Rs. 1.76 Lakh Crores to the exchequer! And it is this number that had created a sensation.
I fully agree with this view. Now some alleged wrongdoings of Mr.Vinod Rai when he was Finance Secretary are coming to light. He was probably arm-twisted by Dr.Joshi to write what he (Joshi) wanted.
On the other hand, Mr. Rai has been picked by the UN as the Chaiman of its panel of external auditors. He will head the panel that audits IAEA. He has raised his profile globally as a result of his 2G audit report. Good career move I guess!