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Sibal ignored other scenarios presented by auditor in CAG report
January, 11th 2011

Communications and IT Minister Kapil Sibal might have termed the Comptroller and Auditor-General of India (CAG)'s calculation of loss to the exchequer from underpricing of 2G spectrum utterly erroneous, but he has completely ignored other scenarios presented by the auditor where new operators made crores by selling their stakes to global telecom giants or were themselves ready to pay more for the scarce spectrum.

Mr. Sibal, who has made flip-flops in his statements by first criticising the telecom policy and then blatantly defending it, also failed to notice how his predecessor, A. Raja, misled the Prime Minister while single-handedly deciding on the allocation of licence. Similarly, the recommendations of the Telecom Regulatory Authority of India (TRAI) on revision of spectrum prices were totally undermined. And when the Centre followed the market mechanism to determine the value of licences since early 1990, what stopped it from doing the same in 2008 when the mobile connections stood at over 26 crore and teledensity at 26 per cent against 3 per cent in 2001?

In its report, the CAG has clearly stated that the four sets of loss figures it had projected were totally presumptive. The auditor has also pointed out that it had looked at various indicators to assess a possible [presumptive] value from the various records available rather than going by any mathematical/econometric models. While the CAG pegged the loss at between Rs. 57,000 crore and Rs.1.76-lakh crore, Mr. Sibal said the government made no loss in allocating spectrum in 2008. He also termed the Rs. 1.76-lakh crore loss figure based on 3G pricing totally erroneous.

Interestingly, when companies like S Tel Ltd were ready to offer more price for spectrum, the Department of Telecom completely ignored it. In its letter to Prime Minister Manmohan Singh, S Tel had volunteered to pay an additional revenue share of Rs. 6,000 crore and later enhanced its offer to Rs.13,752 crore in its letter to Mr. Raja. It even agreed to increase the bid price in the event of any counter bid.

As per calculations based on S Tel's offer, the government exchequer would have got Rs. 65,909 crore as against Rs. 12,386 crore collected by DoT. This indicated that had an open process of bidding/auction been used for price discovery and hasty and abrupt changes in the deadlines date not been made, it could have been possible for the government to have received at least this amount, the CAG said in its report.

Comparison

Similarly, a comparison of foreign equity attracted by the new entrants in the Indian telecom market would reveal that the cost of pan-India licence could be between Rs. 7,758 crore and Rs. 9,100 crore, while the DoT issued pan-India licences at Rs.1,658 crore. The government could have earned revenue ranging from Rs. 58,000 crore to Rs. 68,000 crore.

That new operators could draw huge foreign investments, even before establishing a foothold in the Indian telecom market would suggest that acquiring licence with its allotment of spectrum for rollout was the main factor which attracted a huge FDI. The value which should have been accrued to the public exchequer went as a favour to the new licensees in the form of huge capital infusion for enriching their business, the CAG said.

Notably, in November 2007, Prime Minister Manmohan Singh wrote to Mr. Raja asking him to consider introduction of a transparent methodology of auction and revision of the entry fee, which was benchmarked on an old figure (Rs.1,658 crore for pan-Indian based on the 2001 auction). However, Mr. Raja gave incorrect information to Dr. Singh that the issue of auction of spectrum was considered by the Telecom Commission and was not recommended.

However, the fact was that TRAI recommendations on pricing were never discussed at a meeting of the full Telecom Commission between the date of submission of TRAI's recommendations and the date of Mr. Raja's letter.

Ironically, the DoT even overruled objections of the Ministries of Finance and, Law and Justice, and arbitrarily went ahead with allocating licences when the matter should have been referred to the Empowered Group of Ministers as per the Government of India (Transaction of Business) Rules, 1961.

The CAG observed that the Telecom Ministry was not open to the idea of discussing and deliberating the issues involved at appropriate levels even when there was a high risk of huge revenue loss to the government exchequer.

 
 
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