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2G and not 2G

8 February 2012 By Jeff Glekin

India’s judiciary is making its presence felt in the fight against corruption and crony capitalism. The Supreme Court’s ruling in the 2G telecoms scam will change the way all state assets are sold in future. It could also stir a hornets’ nest by reopening other old licence awards, in telecoms and other sectors.

The court ruled that there was a fundamental flaw in the first-come-first-served policy under which 2G spectrum was allocated. Anyone who obtained privileged information about the timing of the sale stood an unfair chance of success.

The court also appears to have ordered that all future sales of land, mines, spectrum and other state assets, should be conducted as auctions. Lawyers will debate how soundly this reflects the constitution. But economists ought to welcome the ruling. Auctions are the best method of price discovery. They leave little room for corruption.

What about past sales though? The court said that firms such as Vodafone, Airtel and Reliance which are using spectrum awarded in 2001 are not subject to the current judgement because they were not part of the petition under consideration. But that leaves the door open for fresh petitions. Some lawyers have said that the 2008 process was distinct from that in 2001 and the licences would therefore not meet the same fate. The 2008 sale was found to be corrupt and, while the 2001 process may not have maximised revenue, there’s no evidence of graft. A public interest litigation could be filed to test that award, though.

For the central government, spectrum is the main source of revenue from asset sales. But at the state level, mine and minerals sales are important, raising $4.3 billion since 2004. The wider applicability of the court’s judgement could also be tested in relation to revenue sharing agreements of oil and gas reserves, for example Reliance Industries’ large gas contracts.

So while the future looks brighter in India’s battle against corruption, there is a risk that the country gets bogged down in a wave of litigation on the back of the precedents set in the 2G case.

 

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