Friday, January 28, 2011

Shifting Goalposts in the Telecom Scam

What are the types of scam that a person in an influential position can perpetuate?

One type of scam is to sell something that belongs to the Government at a cheaper than market rate. That buyer then sells the asset at prevailing market price and pockets a profit. Typically, discretionary land allotments fall in this category. Such benefits often accrue to ‘people who are close to power’ or ‘loyal’.

The second type of scam is the opposite of this one. Where the influential person enters into a contract to buy something (Guns, Submarines) for the forces or Government or infrastructure at an inflated price. A variation of this is to buy substandard or outdated technology or non standard items. In either of these cases, the cost is inflated.

Now, in buying and selling assets — it is entirely possible that the official in question is naive or stupid. But to expect in these times that any politician can be so stupid as to not see his (or his backers) self interest is a little bit of a stretch. So we can assume that people at influential positions make transactions based on self interest as much as national interest (the former may trump the latter as we have seen).

Leaving stupidity aside, benefits from both the above transactions (in the former case, the profit is often a reward for loyalty) can flow back to the “person of influence”. This is known as a kickback. Kickbacks can be in cash and kind. Kickbacks in kind varying from a simple job or jobs to a stake in business to real estate. Kickbacks in cash may be to varying non persons, benami friends and Swiss accounts.

The reason why this elucidation is required is because there is attempt in some quarters to shift the goalposts on the spectrum scam that the loss is notional.

The loss is not notional because some other entities made money on the spectrum almost overnight — since the spectrum was sold on 2001 valuations in 2007. The loss would have been notional, had the holders of the spectrum made no money on it.

This argument assumes that the Government does not need that extra money or that the extra money would have made the Government spend more on pork barrel schemes.

But that argument is simply stating a known fact that the Government is corrupt. If the mug does not leak, the bucket will. That is no basis to justify the underpricing of an asset and selling it off to favoured bidders.

In fact, the argument could be equally strong on the other side that the extra money would have helped the Government lower taxes or invest in defence and infrastructure and in many other much needed areas.

The second shifting is to say that customers benefited because of lower tariff on account of the low cost of spectrum sale.

On this count, if the Government was so concerned about offering low cost to customers, it should have taken a very nominal licence fee and opened the floodgates to multiple operators with a profit sharing clause. Clearly, the reason of the low cost of sale was not about benefiting customers. This is now being added to the argument — perhaps by the operators who benefited. If this was true, why did people lobby for a particular man to head the Ministry? And as far as I know, customers did not lobby for him to be there.

The fact is that the money that should have gone to the exchequer went into private hands. Whether it went into politicians hands is a matter of investigation which as we all know will run into millions of years and zillions of dead ends — by which time it will fade from public memory and the beneficiaries will enjoy the high life. The money, in the meantime, will be invested in real estate, gold or in tax havens and may even come back as FII investment in the stock markets.

But for now, it is important that we let the focus remain on the fact that the exchequer was robbed.

(This piece was published as an Op Ed in Pioneer on 26th Jan 2011)

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