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What is 2G spectrum scam all about?

A court on Wednesday put on trial the first set of officials and businessmen indicted in the country's biggest corruption case, a multi-billion dollar scam - 2G spectrum scandal, that has weakened the government and put off some foreign investors.

delhi Updated: Apr 13, 2011 12:06 IST

A court on Wednesday put on trial the first set of officials and businessmen indicted in the country's biggest corruption case, a multi-billion dollar scam - 2G spectrum scandal, that has weakened the government and put off some foreign investors.

The graft scandal is one of several to have emerged in the past few months, tarnishing the reputation of Prime Minister Manmohan Singh, whose government has gone on the defensive against an emboldened opposition.

While corruption itself has been largely shrugged off by investors, the regulatory uncertainty from the review of past government decisions is a source of concern to investors.

Present at the hearing are former telecoms minister Andimuthu Raja as well as officials from the Indian joint ventures of Norwegian telecoms firm Telenor and the United Arab Emirates' Etisalat.

Three executives from Reliance ADAG, owned by Anil Ambani, are also on trial in the case which police investigators said involved awarding companies valuable telecoms licences at rock-bottom prices. The state auditor estimates the scam to have cost the government up to $39 billion in lost revenue.

Here are some questions about the scandal:

WHAT IS THIS ALL ABOUT?

Police say that millions of dollars were paid in bribes to ensure favours for certain firms in 2007/08 when India issued 122 new licences to offer mobile phone services in the world's fastest growing telecoms market.

The state auditor estimated India may have lost up to $39 billion in revenue -- equivalent to the defence budget -- due to violations during the allocation process.

Several licences were issued to firms who were ineligible, or who had no prior experience in the sector, or who had hid material facts while applying, the auditor said.

The telecoms ministry's process of issuing licences "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner," the auditor said.

WHAT ARE THE CHARGES?

Police have charged the accused of cheating, conspiracy and other crimes.

The accused include Sanjay Chandra, the managing director of Telenor's India partner Unitech and Shahid Balwa, the vice chairman of Etisalat's India operations.

Raja, the former telecom minister, is also accused of taking bribes to favour the local partners of Telenor and Etisalat. Police say the bribes were routed through a television channel-Kalaignar TV run by Raja's DMK party, a key member of the ruling coalition led by Congress party.

All the accused deny any wrongdoing. Telenor and Etisalat say the events described occurred before they invested in India.

WHAT IS THE FALLOUT?

The scandal has tarnished the Congress-led government's image, spooked investors and has led to the Norwegian prime minister writing to his Indian counterpart seeking "fair treatment" for Telenor.

Prime Minister Manmohan Singh was reprimanded by the Supreme Court for not acting quickly enough against Raja and the opposition all but shut down an entire parliament session demanding a special cross-party probe.

The government gave in to that demand. A separate parliamentary committee is also investigating the graft scandals. One of those panels summoned Ratan Tatad and Anil Ambani -- two of India's most high-profile businessmen -- to answer questions on the licence allocations.

The telecoms ministry is considering whether to cancel 85 licences issued in 2008, including those held by Telenor and Etisalat.

The scandal could dent Congress' chances in Wednesday's elections in Tamil Nadu, which is ruled by the DMK, as voters may decide to punish it over the role senior party member Raja, the former telecoms minister, played in the corruption scandal.

WHAT DOES THIS MEAN FOR INVESTMENT IN INDIA?

Regulatory uncertainty is worrying investors, as so many business deals are being investigated and there is the possibility that some may be scrapped.

This concern has hit the Mumbai stock market, which ended the March quarter as the world's worst performer.

If the telecoms ministry does decide to cancel some or all of the 85 licences it is scrutinising, questions will be raised over whether foreign investors can trust Indian government contracts.

Norway's prime minister has said Telenor should not be penalised for "errors others have committed in India."

It is early to say whether licences will be cancelled, but pressure will be on the government not to do so because operators have invested millions of dollars in rolling out networks and cancelling them will inconvenience subscribers.