governance

In recent times, there has been a spate of arguments from Congress and allies, which essentially boil down to “In 2012, the 2G license auction fetched only Rs. 9,600 Crores, with some sectors going unbid. Hence the CAG’s estimate of a loss of Rs. 1.76 Lakh Crores is inflated.” The detractors of CAG have even gone to the extent of alleging that the CAG is somehow colluding with the Opposition party, BJP, to discredit and smear the government. It is possible that Congress and allies are attempting to create an impression that no wrongdoing occurred at all in the allocation of 2G licenses.

Here’s a little note that might help you understand what this is about. If you’re not familiar with what the 2G scam is about, read this first.

What is the government being accused of?

It’s important to understand that the UPA government is under pressure on two counts: Corruption and incompetence.

Charges of corruption: Corruption is about doing things in an illegal and wrongful manner, which violates the laws of the land. Detractors allege that there was impropriety when the licenses were originally allocated in 2008. The government, in its wisdom, followed a First-Come-First-Served (FCFS) policy in allocating licenses at that time. It is alleged that the government manipulated the FCFS process to favor certain bidders. It is also alleged that these favored bidders may have provided kickbacks. Mr. A. Raja, then Telecom Minister, is under investigation. None of the allegations have been proven in court as yet.

Charges of incompetence: Incompetence is not about illegality or wrongdoing, but about inefficiency. By following FCFS policy, it is alleged that the government may have cost the exchequer a big pile of money.  If the licenses had been auctioned instead of FCFS, they would have fetched higher prices, goes the argument. There is no easy way to estimate such losses. However, the CAG has gone on record estimating the losses at 1.76 Lakh Crores. An auditor, RP Singh, who was part of the CAG’s office, has recently claimed that his estimate of Rs 2,645 Crores was not accepted and that he was coerced by the CAG into going with the higher estimate. Whatever be the case, it appears that the losses are somewhere between Rs. 2645 Cr and Rs. 1.76 Lakh Crores according to these gentlemen.

Here’s how to look at this situation

  1. Any losses, in this case, are notional. Which is to say that the government did not lose money out of pocket. However, notional losses are still losses for the reason that this money, if it had been realized, could have come into government coffers and could have been deployed to other national projects. Loss of revenue is, at the end of the day, a loss suffered by the government. Consider this: If you or I avoided paying income taxes to the government, the government would suffer a loss in tax revenue. If hauled to court, it is unlikely that we would get away by arguing that the government’s loss was notional. So, all losses have real impact, whether you call them notional or otherwise.
  2. It is simply not possible to estimate these losses accurately since there is guesswork and a judgmental aspect to the exercise. There are many ways to evaluate this, and they will yield wildly different results. Hence, it is surprising that the CAG wasted valuable tax payer money on this wild goose chase. If anything, they should have provided a range for their estimates in the interest of maintaining fairness and demonstrating lack of prejudice. It is equally ridiculous for Mr. Kapil Sibal to insist that there were *zero* losses. The fact is we simply don’t and won’t ever know.
  3. Even if it is somehow proved that the government suffered losses, it doesn’t necessarily mean that they have done the wrong thing. One could argue that by deliberately lowering prices of 2G licenses (and thus accepting losses), the government actually ensured that these services were sold at affordable rates to the common man and ensured mass adoption. These are philosophical differences in policy making, and do not imply incompetence or wrongdoing.
  4. On the charges of incompetence: We must give the benefit of doubt to the government. It is, at worst, not clear if the government’s policy of FCFS in 2008 has cost the country dearly. At best, it has worked very well given that 2G adoption in India has been spectacular over the last five years. One could argue that if we had followed the auction route in 2008, we might have obtained the same results. We will never know. Since we got a good result, perhaps we should not quibble with the past and let it go. However, the government’s decision to auction 2G licenses a month back can be questioned. One almost gets the feeling that the Telecom Minister, Mr. Sibal, went out of his way to ensure low prices to prove his earlier “zero loss” theory and may have caused losses to the government in the process. 2G as a technology is now obsolete. In 2012, it may have been the right decision to go with the FCFS method of procurement, instead of going the auction route, which surprised many industry observers.
  5.  On the charges of corruption: The Supreme Court has ruled that there seems to be preliminary evidence of wrongdoing. A Cabinet minister was remanded to custody for over a year. The ball is in the government’s court to prove that there was no corruption of the process followed to hand out licenses under the tenure of Mr. A. Raja. The lack of urgency on the government’s part to settle this matter only serves to fuel suspicion and misgiving.

Report Card

Congress: Fail. For failing to investigate allegations with seriousness and urgency, and for attempting to confuse the public by openly targeting a constitutional authority CAG on a largely irrelevant topic.

BJP – Fail. For failing to argue the case against the government and thus adding to confusion and incoherence in debate.