Chandrashekhar refutes claim that “government acted on TRAI’s recommendations”

The former Cabinet Secretary K.M. Chandrashekhar caused a flutter in October when he told a Parliament panel probing the 2G scam that he had warned the Prime Minister of a Rs. 35,000 crore revenue loss if spectrum prices were not revised to take account of post-2001 market developments.

Though Mr. Chandrashekhar gave the Joint Parliamentary Committee a broad description of the letter, its detailed contents — which have been exclusively accessed by The Hindu — tell a story that runs counter to the claims made by the Prime Minister and Congress spokesperson that the government was powerless to stop Telecom Minister A. Raja from selling spectrum at 2001 prices due to TRAI’s recommendations not to hold auctions.

The existence of the letter — which was never shared with the Supreme Court or Parliament before — came to light on October 18, 2012, after persistent questioning of Mr. Chandrashekhar by CPI leader Gurudas Dasgupta during his deposition to the JPC. Mr Dasgupta thereafter questioned why the letter had not been shared with the CAG or the PAC, demanding that the PMO make the letter available to the JPC.

Mr. Chandrashekhar’s letter to the PM was written on December 4, 2007 — over a month before the 2G scam was perpetrated on January 10, 2008 — explicitly spelt out the real value of a pan-India 2G license as Rs 8,700 crore and not Rs 1,658 crore. Since Mr. Raja awarded 122 new licences in all, Mr. Chandrashekhar’s formula places the total loss at upwards of Rs 35,000 crore.

Mr. Chandrashekhar argued that the ‘indexation’ process can be used for “increase in spectrum fee”. The letter even provided a formula and calculation sheet, based on which he said that valuing 2G licences at a 2001 price as Mr. Raja was doing would lead to a loss of roughly Rs. 35,000 crore. He explained, “All asset prices have increased substantially over the last six years, with inflation being about 34 per cent. In the case of spectrum, the quantum allocated has increased by around 40 per cent over this period, while teledensity has become 5 1/2 times. On this basis, the value of Rs. 1,650 crore paid in 2001 becomes (1,650 x 1.34 x 5 1/2 divided by 1.4) = Rs. 8,700 crore, i.e., about Rs. 7,000 crore higher”.

Emphasizing that spectrum was underpriced, Mr. Chandrashekhar said, “The fact that the market considers this asset under-priced [can be seen] by the long queue for fresh licenses, the alacrity with which Reliance and two other firms paid up the fee when allowed to do so (within a few hours). SingTel has, as per media reports, made an offer of Rs. 5,000 crores for the license (bundled with the initial 4.4 MHz spectrum), while Mr. Ratan Tata offered in 2005 to pay Rs. 5,000 crore for 5 MHz (3G) spectrum”.

Mr. Chandrashekhar’s letter also anticipated and refuted the “level playing field” argument that Mr. Raja and many Congress leaders would raise once the scam broke. “The rapid expansion of consumer base during this period has effectively taken the risk out of this business” he explained. “Even earlier, the fourth license operators paid a different amount than the first and second operators. There is, therefore, no justification for retaining license fee at the earlier rates on the ground of ‘level playing field’ between new licensees and incumbents”.

Using the DoT’s own data to indicate specific losses to the exchequer, Mr. Chandrashekhar wrote, “DoT has projected availability of at least 40 MHz by March 2008. Even if the commitments already made to existing operators and licensees awaiting initial spectrum are taken into account, it should be possible to give around five new licenses with initial spectrum of 4.4 MHz each. In case this is done through auction, this could amount to additional revenue to the Government of the order of (7,000 x 5 =) Rs. 35,000 crore, over and above what would accrue at the existing license fee”.

Mr. Chandrashekhar told the JPC that he never heard back from the PM on this letter.

In a meeting with TV editors on February 16, 2011, the Prime Minister said that he was forced to go along with Mr. Raja’s refusal to auction spectrum because telecom regulator TRAI had not recommended auctions, nor had the Telecom Commission, combined with the fact that the then Finance Minister P Chidambaram and Mr Raja had agreed to keep 2G license entry fee in 2008 at 2001 levels.

But an indexation-based revision of the 2001 entry fee in 2008, as Mr. Chandrashekhar had suggested, was perfectly legitimate and was well within the government’s decision-making authority.

Ironically, Mr. Chandrashekhar’s letter also made it clear that the TRAI’s recommendations were not an obstacle. After citing relevant TRAI recommendations in detail, his letter noted: “It is understood that the decision of fixing the one-time entry license fee on the basis of the 4th cellular operator auction price is a decision of the DoT, and is not based on any recommendation of the TRAI”. In effect, Mr. Chandrashekhar clarified that the TRAI’s recommendation against auctions in no way prevented the government from increasing the entry fee.

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