THE MYTHOLOGY OF A 176,000 CRORE LOSS
By Sanjay Jha
On Tehelka and http://www.HamaraCongress.com
( The apparent difference is just a measly Rs 173,355 crores between the earlier inflated allegations of financial loss in 2G scam and the new figure in circulation of Rs 2645 crores . How come such a gargantuan ruse was pulled over our naked eyes by CAG ??? The extraordinary manipulation of a mythical loss).
In Washington they say that even a dog refuses to be a man’s best friend. The poor canine sniffs trouble interspersed all around him. Conspiracy theories, palace intrigue and internecine feuds are considered commonplace and customary conditions in most political capitals of the world. Delhi is no exception. There is always something uncannily sinister in the dark corridors of power; its stealthy political one-upmanship accentuated by the imperceptible influence of corporate rivalries, raw media power, lobbyists and odd assortment of power-brokers.
Last week in Delhi someone told me in deadly earnest what has been often rumored that the Sangh Parivaar has insidiously infiltrated into key organs of our democratic institutions. I am not making any innuendos, but the CAG’s remarkable promptitude in publicly pronouncing the 2G scam numbers at a mind-boggling 1.76 lakh crore indeed raises more than mere suspicious eyebrows especially now that it is known that RP Singh , Director-General ( audit , post and telecommunications) had a comparatively pygmy-like figure of Rs 2645 crores ascribed to the supposed policy contraventions. According to Singh, the only missing factor was overlooking cost escalation on account of inflation-indexing. But the 2G report almost threatened the very existence of a democratically elected government, led to the rise of extreme extra-constitutional forces on an anti-corruption crusade , besides systematically decimating a beleaguered coalition at the helm. We are talking serious business here. CAG chief Vinod Rai needs to explain the exaggerated 80 times multiple that he assiduously postulated as damages, when his own principal investigator had a contrary opinion.
To understand the 2 G scam though , we need to sub-divide the core issues in the imbroglio:
1) Presumptive loss is a notional figure where financial impact is measured on certain assumptions. The fundamental aspect therefore is the reasonableness, validity and foreseeable actuality of those assumptions. If the assumptions themselves are seriously flawed, the figures may be grossly exaggerated making the entire debate ridiculously skewed.
2) To understand the erroneousness of CAG’s estimations, we have to go back to the basics on which this monstrous mythical figure of 176,000 crores made its formidable debut. Even companies like Swan and Unitech that got the spectrum at arguably cheaper prices, issued fresh shares to foreign buyers to create a joint venture as opposed to earning capital gains on promoter equity dilution. Thus, the respective companies gained fresh equity capital for company operations/expansion as opposed to private profiteering, even if the promoter stake naturally fell corresponding to value of fresh equity offerings. But were these transactional financial deals good enough to be construed as potential market value of 2 G spectrum ? The answer is NO, and has been further explained below. Of course, it can be alleged that the companies benefited from the unusually high valuations giving them undue competitive advantage.
3) By the same criteria, how can S Tel’s offer for a pan-Indian license also be a benchmark for evaluating the loss ( it was also subsequently withdrawn) . These are corporate decisions based on company’s assessment of the telecom market, their global footprint, shareholder value projections and capital capacity. Sure, it is market forces at play but it has the major drawback of adopting a transactional approach, as it is prone to the subjective judgment of just a few corporate entities that may have no practical universal application. Let us take an example; supposing I volunteer to purchase property from the GOI at some ridiculously exorbitant rate, can that become an acceptable “ benchmark” for other similar investors??? I may have made a grievous miscalculation or been highly bullish, or had ulterior motives; should other genuine investors pay a hefty price for it??
4) I am flabbergasted as to how a crucial element of telecom valuations was casually camouflaged ; 2G and 3 G are vastly different technology platforms. With faster downloads, broadband wireless, video streaming, mobile TV, e-banking happening on handheld instruments, 3G is a technological leap, like a mammoth metamorphosis. 3G is for India’s young urban middle class consuming mobile on the move; a high-value premium service for a niche affluent consumer . With mobile expansion slowing down, telecom operators see higher per user revenue realization from 3G , hence the successful auction war for it. Can we compare the brute power of BMW SUV with that of a Nano just because they are both four-wheelers??? The CAG argument is not just seriously blemished , it defies elementary common-sense expected of a first-year commerce student.
5) Thus, the estimation of loss itself has taken several forms simply because it is subject to myriad interpretations based on subjective assumptions. An auction reflects price-discovery, the market sentiment at a given point of time which can drastically change overnight. That’s why the CBI has got its own version of Rs 30985 crores ; it tells you the absence of an acceptable common determinant for projecting profits/ losses on 2G spectrum sale, and that too, with retrospective effect.
6) The problem as usual lay in the outlandish execution by the former Telecom Minister Raja which clearly appeared disputable . But the policy per se could not be faulted. Incidentally, the first come first served policy was consistent with the GOI’s objective of increasing tele-density . Raising large public revenues can easily contravene the key objective of affordable access of mobile services for the common man, as telecom operators would pass the higher cost to unsuspecting consumers. .You cannot decouple the two innately conflicting objectives. That in short is the simplest explanation for the telecom scam. A fine balancing act on a slippery tight-rope was always going to be difficult exacerbated by the fact that telecom pricing was in an evolving market with no historical precedence.
7) Ideally, Raja should have arrived at a “ fair price” taking into account multiple factors when he issued those controversial 122 licenses. Even the cost index inflation was inadequate. Ideally, one should have considered the growth in telecom business/users ( the number of users had increased to 280 million in 2008), falling tariff rate, cost of capital, extent of investment, employment opportunities, projected profitability, and unexplored market potential. The truth is that spectrum pricing/ allocation is a complex math as it is an intangible asset with significant hidden monetary value. Governments usually lack the financial engineering skills needed for litigation free fund raising. Giving the telecom minister a virtual license ( pun intended) to determine pricing was always a risky proposition.
8) I think the core focus should be on whether there was a willful criminal conspiracy to manipulate regulations to defraud the exchequer to favor select parties. Because the fact is that whether it was Rs 176000 or Rs 2645 crores it is still not small change. But why did Vinod Rai’s CAG office leak the report before it reached Parliament ? Who authorized it? To use the same argument of the BJP on cash for votes,, who was the real beneficiary of the CAG fissures ? That is where the real story lies. Why was an obstructionist attitude demonstrated towards one of its own key investigators? The BJP may have chuckled with sadistic delight at Kapil Sibal’s zero-loss proposition, but as of now it is Sibal who is perhaps having the last laugh.
The CAG it seems applied too much lotion to a notion to keep it in motion and hurl it into a commotion. It’s not over yet.