Auctions are dead, long live auctions

Updated - November 17, 2021 05:09 am IST

Published - September 29, 2012 12:55 am IST

No matter how the Manmohan Singh government spins the 2G Presidential Reference judgment, the principle at stake in the Supreme Court’s hearing on the allocation of natural resources was not the method of allotment but the need for transparency and fair play. Air and water, for example, are natural resources that no sane person would suggest allocating via an auction. But in the case of 2G spectrum and coal, the allocations made were arbitrary and often mala fide. The government gave the resources away knowing full well there was a better way of allocating them. Aiming to keep call and power prices low was an afterthought, a “policy” invoked to justify caprice. Senior Ministers are now hailing the court’s acknowledgment that the government has the right to allocate natural resources and that auctions, though preferred, are not mandatory. But even as they toast their “victory,” government managers ought to realise what the court has handed them is a poisoned chalice. Indeed, its opinion has placed new riders that will make it harder for discretionary powers to be abused. From now on, the state’s actions have to “be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which are rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14,” the judgment says, invoking the constitutional guarantee of equality.

This language makes it virtually impossible for the government to resort to any arbitrary process of allocating scarce, valuable resources, since methods like first-come-first-served, lotteries and beauty parades cannot even begin to pass the new tests. In essence, then, the government can have any process for allocation it wants, so long as it’s an auction. The order’s carefully worded tests on allocation allow an aggrieved party to approach the courts to get an unfair or capricious allocation set aside, even those involving auctions. After all, auctions too can be compromised, as some of the privatisation deals struck by the former National Democratic Alliance government most likely were. While the court said policymaking is the government’s domain, it added “the implementation of policy will be tested and interfered with when found wanting”. The government can celebrate all it wants, but the court’s opinion in no way diminishes the scam taint from 2G and coal. If anything, the court has dealt a blow to crony capitalism by making the process for future allocations far stricter.

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