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Accounting for the 2G spectrum scam

business Updated: Nov 27, 2012 22:46 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
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The 2G telecom spectrum scam is again back in the news with a former official of India’s national auditor Comptroller and Auditor General (CAG) contesting CAG’s estimate of Rs. 1.76 lakh crore presumptive revenue loss the government suffered by allotting telecom spectrum at low prices. A look at the issues:

What’s the allegation?
The department of telecom (DoT) headed by Raja, it has been alleged, decided on who should be given the licences much before the bids had come, exploiting loopholes in the existing first-come-first-served (FCFS) policy.

What happened in the 2G scam?

The govt allotted licences on the first-come-first-served (see de-coded) policy to companies without established credentials on mobile telephony. Telecom licences and spectrum was granted in 2008 at 2001 prices and some of the companies were accused of divesting equity at significantly higher prices. Telecom firms, it has been alleged, were awarded licences arbitrarily and granted 2G spectrum (radio frequency) on January 10, 2008 were offered at extremely cheap rates robbing the government of revenues.

How did CAG arrive at the presumptive revenue loss figures in the 2G scam?
The national auditor, the Comptroller and Auditor General (CAG) pegged at R1.76 lakh crore the presumptive revenue losses to the government after it issued 2G spectrum in 2008 at 2001 prices. The CAG based its estimates on three primary parameters to arrive at the loss figures. These factors are inclusive of the following: the market price determined in an auction of 3G spectrum in 2010, the price offered by S Tel to DoT and the valuations at which at which the investors bought stakes in these companies.

What is the controversy regarding estimates of a former CAG official?
Former director general (audits) RP Singh has contested the CAG’s estimates. He said that he had calculated a loss of Rs.2,645 crore for allotting 2G spectrum in 2008 at the price of 2001. He has claimed that he had calculated losses on the basis of the price at which licences were issued in 2001 and indexed it against inflation. This method, he says, is similar to that adopted by the government in calculating dearness allowance for its employees.

What has the Supreme Court ruled?
The Supreme Court, in a judgment on February 2, 2011 cancelled the 122 2G spectrum licences granted on January 10, 2008 on the ground that they were issued in a “totally arbitrary and unconstitutional” manner. The Supreme Court also came down heavily on the FCFS policy and termed it fundamentally flawed.

What’s the status of the 2G auction?
The government’s plan to raise valuable revenues by auctioning 2G telecom spectrum has virtually come unstuck with operators offering bids worth only Rs.9,407 crore. Only 55% of the total spectrum offered nationally was sold, with operators refusing to pick up any slot in the most lucrative Delhi and Mumbai circles, with the two metros accounting for 40% of the total pan-India spectrum in terms of value. There were also no bidders for spectrum in Karnataka and Rajasthan — a far cry from the 3G spectrum auction two years ago in which telecom companies were jostling against each other in a 35-day process that netted Rs.67,000 crore.

Why was there such a cold response?
Industry expects believe that the reserve price may have been set too high for operators to bid. This is more so when most operators have raised heavy debts during the previous 3G spectrum auction.

How will it affect the government’s plans?
The turn of events will also upset the government’s fiscal math at a time when the country’s top financial administrators are wrestling to reverse a sharp slowdown in the broader economy. The auction fetched the government less than a quarter of Rs.45,000 crore it had expected on the basis of the reserve price if the companies had bid for all the radio waves put on the block. The government will earn only Rs.3,000 crore in 2012-13 according to a formula that allows operators to stagger their payments over 13 years. The less-than-anticipated spectrum auction proceeds will also widen the fiscal deficit.