The government is on the wrong wavelength

When one read about the failure of the 2G auction, one knew immediately that the UPA government and the Congress party would be jubilant at the opportunity of claiming that the Comptroller & Auditor General’s (CAG) report on 2G spectrum was wrong and that they had said so all along. Sure enough, Congress leader Digvijay Singh was quick off the mark: he observed that the CAG should re-check his figures of notional loss. Telecom Minister Kapil Sibal was more guarded but his glee unmistakably came through. The new Information & Broadcasting Minister Manish Tewari, is not a man for subtleties. He declaimed: “Where is the loss of 1.76 lakh crores, Mr. CAG?”

It is almost as if these gentlemen were delighted at having put the CAG in the wrong (as they thought or pretended to think), rather than unhappy at the failure of the auction. They should have been more guarded; soon they may be laughing out of the other side of their mouth. The Opposition and the Left are not easily taken in by disingenuous debating points.

Three questions

Was the CAG wrong? His officers must be preparing a detailed data-based answer to that question, but let us consider this in general terms. The question can be broken down into three sub-questions: 1. What did the CAG really say? Did he say that 2G spectrum should have been auctioned? 2. Were the CAG’s concepts of “presumptive or notional loss” and of “windfall gain” fallacious, and were they wrongly calculated? 3. Have his calculations been retrospectively invalidated by the failure of the 2G auction?

The recommendation that the allocation of scarce natural resources, where necessary, is best done through some form of public bidding (in the interest of discovery of the market price, fairness/equality of opportunity to all, revenues to the government and public interest) was not a new point of the CAG’s; it is a general proposition that many would accept in relation to most natural resources (except water or forests, of course). The point is that discretionary allocations are fraught with the risks of corruption and/or violation of the equality principle. In the 2G case, the Finance Ministry had raised the question of competitive bidding at one stage. The CAG took his cue from this. Later, the Chawla Committee on the allocation of natural resources said something similar in general terms. The Supreme Court said so in its 2G judgment. Still later, in reply to a Presidential reference under Article 143 of the Constitution, the Supreme Court clarified that this was not a blanket statement applicable across the board to all natural resources under all circumstances, but it reaffirmed the 2G judgment in so far as spectrum was concerned. Subsequently, the Supreme Court went so far as to caution the government against playing with its order. If the government now thinks that the CAG stands discomfited by the outcome of the 2G auction, is it prepared to say that the Supreme Court also stands discomfited? In mocking the CAG, is it also cocking a snook at the Supreme Court?

Coming now to the concepts of presumptive or notional loss or of windfall gain, the debate has got unnecessarily side-tracked by references to the Income-Tax Act. They are commonsense notions. Faced with an arbitrary or discretionary or opaque executive decision, the question arises: if proper procedures had been followed to ensure equal opportunity to all interested parties (which generally would mean competitive bidding in some form), would the government have realised more revenue, and/or would windfall gains to some arbitrarily selected parties have been avoided? These are entirely legitimate audit questions. A linked question would be whether the non-transparent procedure actually followed might have facilitated corruption; this would be a matter for investigation by the appropriate agency. All this is self-evident; it was valid earlier and continues to be valid now. No specious arguments can undermine that validity.

The difficult question is that of quantification of that presumptive or notional loss or windfall gain. The safest course for the CAG would be to state the point without putting a number on it. However, the problem with that course is that Parliament and the people might fail to recognise the seriousness of the matter. The full implications of the audit criticism are best brought out through numbers. At the same time, those numbers are bound to be hypothetical and not real, and therefore challengeable. It follows that they must be very carefully calculated, and that the assumptions made and the methods adopted must be clearly stated.

Credible basis for suspicion

This is exactly what the 2G Audit Report does. It makes three different calculations under different assumptions and through different routes, all of which are made clear. At the end of it all, what matters is not the number but the underlying opacity, lapse or impropriety, and the probability that if the decision-making had been more open and based on proper procedures the outcome would have been fairer, more equitable and more in the public interest. Unfortunately, once a number is mentioned, particularly a large one, the attention of the media and the general public gets riveted by it, and the discussion gets derailed. This suits the government and the ruling party. They can sanctimoniously express concern at “sensationalism” and bypass issues of opaque decision-making and possibilities of corruption.

The question of whether the three types of calculations made by the CAG were based on reasonable assumptions and methods was extensively debated during the controversy on the 2G report last year.

None of the three figures was an arbitrary number pulled out of the air; there was a method behind each. At the same time, none was definitive. The point is that they provided a credible enough basis for the suspicion that if the government had invited public bidding for 2G spectrum in 2007-8, it might have realised more revenue; or alternatively, that if the government had decided not to maximise revenue but promote the growth of the industry, the inevitable windfall gains to the allottees would have been more equitably distributed, and the potential for corruption would have been reduced.

Does the recent failure of the auction retrospectively invalidate those calculations in the audit report? From what has already been said it should be clear that the answer is a resounding “No.” Indeed, it is obvious enough that market conditions in 2012 are vastly different from those prevailing in 2007-8. This point has been made by several politicians, and also in The Hindu’s editorial of November 16, 2012.

Besides, if market conditions had been as bad in 2007 as they seem to be now in 2012, who would have paid bribes to acquire 2G spectrum, and why would the Central Bureau of Investigation be investigating corruption cases? That by itself provides indirect support for the criticisms of procedural lapses and flawed decision-making in the Audit Report.

Finally, why did the recent auction fail? There appear to have been some predictions by the industry that the auction would fail. Was the government aware of this? Did it make a comparative evaluation of market conditions in 2007 and in 2012? Did it fix too high a reserve price as some have stated? Did it plan the auction properly, and did it take steps to see that it succeeds? These are the questions that need to be examined. Instead, the ministers concerned are celebrating the failure and trying to score debating points.

(Ramaswamy R. Iyer is honorary professor, Centre for Policy Research, New Delhi.)