The ministry of finance is clearly pleased about the money that will come its way owing to the 3G auction and through the sale of shares in PSUs. But revenue for the government is the least important aspect of both these important issues. A glance back at the story of mobile phones is instructive. The rise of private and foreign companies offering mobile phones to Indian consumers has been a boon for the Indian economy. It has bolstered India?s GDP growth and facilitated poverty reduction. These are the issues that matter. Whether mobile telephony generated revenues for the government or not is unimportant. Revenues for the government should come out of GST and personal income tax. Good governments in the world fund themselves by building a sound GST and a sound personal income tax regime. Chasing other sources of revenue is at best a distraction or at worst a source of distortions. As an example, it is easy to build a policy framework for mobile telephony or 3G that makes more money for the government but reduces access to these services for citizens. But that would be wrong.
In the 1990s, many years were wasted in telecom reform, when the entry of private and foreign companies into telephony in India was caught up in the complexities of trying to obtain very large payments from them. However, this was a mistake on two counts. First, it induced a loss of time, and each year of delay in bringing in state-of-the-art technology is lost time for India?s GDP growth. Second, it is wrong to impose a large burden of taxation on any one sector. Big payments from telecom firms to the government are tantamount to imposing an excise upon telecom consumers, which is wrong. The only role for the auction is an allocative one: to choose which firms have the highest capability to utilise the scarce resource (spectrum). Beyond that, a revenue-maximising stance by the government is wrong. Similar issues prevail with privatisation. The first purpose of partial or complete privatisation should be to improve the efficiency with which labour and capital are used in the country, so as to boost GDP growth. We must avoid any hint of government gifting away assets to cronies. But short of that, the government?s job is to constantly sell off these assets and get out of the world of business, without worrying about whether the proceeds are too low or whether a few more years of delay can increase the proceeds. The government must think about how to help India grow, and not about how to fill its coffers.
