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Scrutiny pays, but not always

india Updated: Feb 10, 2012 22:00 IST

Hindustan Times
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There are three ways to give people something they want more of than is available in the store. Make them queue up, draw lots or ask them to bid. All are universally acceptable mechanisms tailored to fit specific situations. Bidding works best when the queue is not too long while lotteries do a good job with large numbers. Each process is open to abuse. Queues can be jumped, lotteries rigged and auction bids fixed. Without policing, none is inherently superior over the other two. To the extent that lotteries and early-bird schemes tend to create a black market, the original purpose of keeping prices low is defeated.

Collusive bidding, on the other hand, depresses the market price of an asset, which could be the lesser evil when farming out finite natural resources like land, minerals or airwaves. Last week’s ruling by the Supreme Court that radio frequency for mobile telephony must be auctioned can’t be applied indiscriminately. Imagine the cost of housing if municipal bodies were to insist on only open auctions for land parcels developed by them.

Anyway, auctions must be open to the highest bidders to be able to capture true value. This raises another set of issues in India where wide swathes of economic activity are off-limits for foreign capital. Prices discovered in auctions that keep the deeper pockets outside the hall cannot be optimal. Development and strategic imperatives keep us from allowing, say, Chinese companies to bid for our coal or iron ore. The fact that Telenor, Etisalat and Sistema bought into the Indian telecom story after their respective local partners had secured spectrum through a dodgy process makes them vulnerable to judicial oversight. But the sight of Norway’s telecom behemoth taking a $721 million haircut on its investment in India is not going to wash down well with others looking to invest in the country, in any sector. With the courts striking down a $2.2 billion tax claim against Vodafone, the message emanating from India is its institutions are talking past each other. That’s a serious concern for a frontline emerging economy.

If seen narrowly — as applying to the specific grant of licences to telecom companies in 2008 — the Supreme Court order cancelling them does serve the public interest in curbing discretionary authority within the government. If, however, this brings more Cabinet decisions into judicial review, the government’s central processing unit will freeze up. Commercial interests of one kind or the other creep into nearly every decision the Cabinet makes. Opening policy to judicial scrutiny can enervate those who make them. There’s little point in taking a stand in the Cabinet if it can be questioned later and struck down by a judge. The Constitution confers that authority on the voter; if the courts read the public interest in its broadest sense, governance could suffer.

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