How to Solve the Telecom Row

The Parliament has witnessed a furore over Mr Sukh Ram\’s attempts to favour Himachal Futuristic Communications Ltd (HFCL) in basic telephone licences. The Opposition parties have declared that this is a Rs 20,000-crore scam, and plan to make it part of their election platform.

This estimate looks inflated. And Opposition parties are wrong in singling out HFCL for lack of experience (no Indian bidder has previous experience). Still, the minister has unquestionably favoured the company, and I share the sense of outrage of the Opposition.

Prime Minister Narasimha Rao generally believes that paralysis is the best policy in the run-up to an election, and may now decide that this is the safest course in telecom too. Even if he gives the green signal for telecom licences (selection is supposed be completed by the end of January), the selected companies may refuse to pay their licence fees since the next general election is imminent. Foreign investors remember what happened to Enron when a new government came to power and revoked a controversial deal. Many of them would rather wait for the elections than pay for a licence in February that might be revoked by a new government a few months later.

While these political games are played out, the country will be a major sufferer. The licence fees for basic telecom could average Rs, 7,000 crore per year for 15 years, starting with an annual inflow of perhaps half that sum. Over and above that, the country will benefit from investment of Rs 150,000 crore over 15 years, of which over Rs 10,000 crore should come in the first year itself. These massive sums will largely, come from abroad and greatly improve the balance of payments. They will be a boon to the finance minister, who is grappling with a huge budget deficit. They will provide phones for all who need them, increasing consumer satisfaction while providing world-class infrastructure that, in turn, accelerates economic growth. They will create thousands of jobs directly, and even more by facilitating industrial growth through improved infrastructure. All these benefits may now be greatly delayed.

A legal row delayed the original issue of cellular licences for meters, and the courts obliged Mr Sukh Ram to adopt a more transparent process. The bidding for basic telephones was indeed more transparent, but he kept an ace up his sleeve. He said he had the right to place a cap on the number of licences a bidder could get, ostensibly as an antimonopoly device, but really enable him to dispense favours. Nobody would have seriously objected if he had specified the cap in advance, but he left this unspecified so that he could exercise discretion after the bids were opened.

The bids showed that HFCL had made by far the highest offer in nine circles, totalling an astronomical Rs 85,000 crore. Telecom experts were unanimous that HFCL could never raise such an enormous sum, and expected that the company would forfeit its security deposit in circles where it could not do the job. But Mr Sukh Ram came to its rescue. He announced a cap of three licences per company. So HFCL chose the three circles where it judged prospects were best, abandoning six other circles without forfeiting security deposits totalling Rs 175 crore.

The cap of three licences also applied to cellular phone bids. In this sector, the BPL-US West combine had emerged as the highest or second highest bidder in five circles.

The cap of three circles meant that BPL-US West had to abandon two circles, letting in the third highest bidder. No prizes for guessing that one of these was HFCL. No wonder the telecom industry is abuzz with stories of kickbacks.

Public interest litigants have asked the courts to stay the award of licences. If they succeed, nothing will happen till the general election, after which a new government may order fresh tenders. In that case, no decision may be possible till 1997.

Is there any quick way out of this mess? Yes indeed. We simply have to abandon capping. In one stroke, all allegations of favouritism will disappear. Nor can the Opposition parties accuse the government of encouraging monopoly, since they themselves have opposed capping. If HFCL forfeits some circles, these can be filled by the re-tendering already ordered in six circles.

This will enable contracts to be finalised and licence fees to flow in by February, slashing the fiscal deficit and boosting foreign exchange reserves. It will scotch what threatens today to be an important election platform of the Opposition. It will diminish the Congress Party\’s reputation for corruption at a time when the party badly needs to spruce up its image. It will accelerate infrastructure development, job creation and economic growth.

What are you waiting for, Mr Narasimha Rao? Tell the Parliament and the country that, in the interests of national consensus, you have decided to abandon capping. Then sit back and bask in the applause that follows.

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