Here is one great paradox. The telecom sector has been India?s biggest success story and yet it has been the most controversial and corruption-ridden. Telecom policy making has proved to be a graveyard for ministers, both honest and not so honest. The most upright telecom minister in the NDA regime, Jagmohan, barely survived more than a year and a half.
Jagmohan fell foul of all telecom players when he had insisted that the migration from a purely licence fee regime to a revenue sharing one could not be done as telecom operators had a contractual obligation to pay up the amounts they had bid before acquiring licences. Jagmohan had made a correct legal argument. The telecom operators dubbed Jagmohan anti-industry and he was gone in the next Cabinet reshuffle. The NDA regime saw six telecom ministers in five years?Buta Singh, Sushma Swaraj, Jagmohan, Ram Vilas Paswan, Pramod Mahajan and Arun Shourie. Each one was surrounded by one controversy or the other.
Kapil Sibal is today trying to examine the notional losses caused by policy actions in the telecom sector over the past decade. This larger exercise is probably aimed at proving that there is really no point calculating notional losses in this sector. To understand this in a wider perspective, one needs to go back to the first principles of what exactly does a policy seek to achieve.
Theoretically, any sectoral policy using national resource seeks to achieve the right balance between creating consumer surplus, producer surplus and government revenues. Simply put, the producer must get enough profits to want to remain in business, the consumer must get enough so that the market expands and the government gains by auctioning resources and receiving sundry tax revenues. Telecom minister A Raja got into trouble because he did not auction resources, in the name of creating greater consumer surplus. He argued that he was transferring potential government revenues to the consumer through a policy instrument. That, however, did not happen. He actually ended up creating undue rents for the producer as some businesses appropriated the surplus that was meant to go to the consumer.
In some ways, Kapil Sibal?s exercise of going back to the origins of the New Telecom Policy in 1999 is an interesting one. With the benefit of hindsight, one can possibly conclude that telecom operators completely misread the Indian market and made a huge miscalculation when they desperately sought migration to a revenue-sharing regime from one in which they had committed a certain licence fee to be paid over 10 years for mobile phones and 15 years for landlines.
The telecom operators were desperate to move to revenue-sharing with the government because it would be easy on their cash flows. You share revenue only when you have it, right? But licence fee had to be paid on an annual basis, whether you had revenues or not. This was the guiding logic for the telecom operators to seek a migration from licence fees committed via auctions to a revenue-sharing arrangement with the government in 1999. Although there was a massive hue and cry at that time over the government tweaking its policies to suit business interests and sacrificing its own revenues, the outcome of the revenue-sharing arrangement was just the opposite. Though unintended, telecom operators have actually ended up paying the government far more because of unexpectedly high revenues accruing from the veritable explosion of the mobile market.
Kapil Sibal has done a rough calculation that the government lost around Rs 1,43,000 crore by allowing operators to shift from their fixed commitments to revenue-share ones in 1999. However, after they shifted to a revenue sharing arrangement, the operators have ended up paying more than that amount, say analysts.
Indeed, if the telecom operators had stuck to the licence fee regime in 1999 and had somehow managed their temporary cash flow problem for about three to four years, they would have been sitting on bigger profits today! Businesses totally misread the market as no one even remotely anticipated the mobile market expansion in the way it eventually happened.
The mobile subscriber market grew exponentially from about 4 million in 2001 to 40 million in 2004 to 400 million in 2009. The telecom operators who had committed licence fee in the late 1990s had projected teledensity to reach merely 15% of the population by 2010! Actually penetration has been more than 50% of the population.
So the government, even if unintendedly, gained by agreeing to shift to a revenue-sharing arrangement with the telecom operators in 1999. Sibal is probably harping on the notional losses caused by the migration to revenue sharing in 1999 to prove a different point. Being an astute lawyer that he is, the minister will try to prove that just as the losses were purely notional in 1999, so it is today as the CAG has calculated. He may even try to work out some revenue-sharing arrangement to make up for the notional losses, as had happened in 1999. He may be justified in doing that, but it should not at all take away from the alleged criminality involved in many of Raja?s highly manipulative policy actions. Of course, those are separate issues that the CBI is looking at under the Supreme Court?s close supervision.
Sibal, however, will do well to make this entire exercise non-partisan. He will be treading on dicey ground if he refers to the policy mess during the NDA regime. For the mother of all controversies was created by the Congress?s telecom minister Sukh Ram, who gave away eight licences in four metros, the most juicy markets, totally free in 1993. Later Sukh Ram also changed policy post-bidding to favour HFCL, which had placed bids worth Rs 85,000 crore. He gave them a way out by imposing a cap on the amount bid, a condition that did not exist when the tenders were called. In retrospect, HFCL may even have run a successful business even by paying a licence fee Rs 85,000 crore over 15 years. The crux of the matter is no one read correctly the unfolding of the great Indian telecom story!
?mk.venu@expressindia.com
