CAG’s Rs 1.76 lakh crore 2G spectrum ‘presumptive loss’ contestable: Subbarao
CAG’s Rs 1.76 lakh crore 2G spectrum ‘presumptive loss’ contestable: Subbarao
The 2G spectrum pricing became a hot issue before the 2014 Lok Sabha elections with the Comptroller and Auditor General (CAG) estimating Rs 1.76 lakh crore ‘presumptive loss’ for the government. Opposition parties led by BJP then made it a major election issue, among other scams, which eventually led to the exit of the UPA government headed by Manmohan Singh in the elections.
Ten years later, Duvvuri Subbarao, a former Union Finance Secretary and RBI governor, said the assumptions underlying CAG’s estimate of Rs 1.76 lakh crore presumptive loss in the 2G telecom scam are contestable on several grounds. “CAG did not reckon with the significant spin off benefits of low spectrum pricing,” Subbarao said in an interview to The Indian Express.
“Arguably, it’s possible to come out with a study that would, in fact, show a ‘presumptive gain’ to the government—that the overall benefits to the government far exceed the revenue foregone—by making assumptions that would be no less robust than those underlying the CAG methodology,” Subbarao said ahead of the release of his book “Just a Mercenary?”
“The sacrifice of upfront revenue would be neutralized by recurring revenue the government would earn via larger spectrum usage. Also, the CAG did not take into account the substantial equity and efficiency gains that would accrue to the economy via deeper telecom penetration,” said Subbarao.
He said the reality is that it’s difficult to quantify the costs and benefits of decisions like this without making heroic assumptions.
As finance secretary, Subbarao contested the proposal of Department of Telecom, then headed by DMK Minister A Raja, to give away these second-round spectrum licences in 2007/08 at the same price as that set in 2001. “I argued that we must rediscover the price through a fresh auction since experience in India and around the world during the intervening years showed that spectrum was a scarcer commodity than originally believed. It’s only fair that a part of the scarcity premium must accrue to the government,” he said.
The DoT pushed back against this proposal. Later, at a meeting with the prime minister, it was decided that this round of spectrum would be given at the 2001 price but all future spectrum would be allocated only through an auction, he said.
The 2G pricing issue assumed crisis proportions when it later turned out that some of the licensees were making windfall profits. The government came in for severe criticism, among other things, for ignoring the advice of its own finance secretary. “I was made to look like a hero. But when I appeared before the JPC, they grilled me on just one question: why didn’t I pursue my suggestion and why did I give in? The JPC was not satisfied with my response that there were limits to the extent to which a civil servant could push his advice. They made it look like I gave up on the interest of the government and made me feel like a villain,” he said.
“In the course of my evidence in the CBI court, the judge asked me if I believed it was right for the government to incur such a huge loss of revenue,” he said.
“I replied that it was misleading to call it ‘a loss of revenue’ when it was actually ‘a sacrifice of revenue’ and added that it was very much open to a democratically elected government to sacrifice revenue if it believed that the resultant gains, both tangible and intangible, exceeded the forgone revenue,” he said. In his judgement, the CBI court said that Subbarao displayed the quality of a “sterling witness” by remaining reasonable and objective in his deposition.
On the advice given by PM Manmohan Singh when he was appointed the RBI governor, Subbarao said, “I related to the prime minister’s advice particularly during my long fight against high and stubborn inflation for over two years during my RBI tenure. Inflation hurts everyone but it hurts the poor disproportionately.”
“I remembered how my parents used to struggle to manage our household budget on a low middle-class income when we were growing up,” Subbarao said. “Your mind will become so cluttered with numbers like inflation, interest rate, money supply and credit growth that you will forget that there are real people behind those numbers. Please be watchful of that possible blind spot,” Singh had told him.
As a joint secretary in the finance ministry, he signed off on the pledge of gold during the balance of payments crisis in 1991, he said, “as a director in the finance ministry, I was handling balance of payments (BoP). I saw first-hand, on my direct watch, the rapid decline in our forex reserves and how we were reduced to scraping the bottom of the barrel. On many occasions, to maintain forex liquidity, we even had to play the clock – borrowing in Tokyo in the evening to repay in New York, only to reverse the deal in the next half day.”
“The Japanese came to our rescue in that difficult time by providing bridge finance. As joint secretary in charge of Japanese assistance, I had the responsibility of negotiating this lifeline to get us through those critical months. And of course, I also had the dubious distinction of signing away the papers that mortgaged our gold for a temporary loan,” Subbarao said.
On his RBI tenure, Subbarao said, “the five years I was at the helm of the RBI (2008-13) were truly turbulent. The global financial crisis erupted just a week after I assumed office. Just as the crisis was receding, we were hit by an extraordinary bout of inflation which segued into a battle against a crash in the rupee in the face of what were termed taper tantrums.”
“You must remember that there was behind me a great institution – the RBI with immense experience and expertise in handling crisis situations like this. It was that support and confidence which helped me navigate these challenges,” he said.
Subbarao dealt with two finance ministers – Chidambaram and Pranab Mukherjee — and reportedly had disagreements with both of them on the RBI policy stance. “Both Mukherjee and Chidambaram had regard for the RBI as an institution. Also, they were both always courteous to me. Even as we had differences, our interactions were always cordial. There were differences though in the settings of the meetings and the mechanics of interaction.”
“Chidambaram would almost always meet me alone. He typically heard me out and gave his point of view, or ‘advice’ as he called it, unequivocally and firmly,” he said.
“The meetings with Pranab Mukherjee, on the other hand, were more formal and larger in setting with all the secretaries of the finance ministry and all his advisers being present and actively participating. All the talking at these pre-policy meetings would be done by his team while he himself mostly stayed quiet. I could never figure out if they had a strategy session in preparation for this meeting or if all of the presentations of the ‘finance minister’s view’ by his staff were spontaneous,” he said.
“Coming from the old school, Mukherjee had no understanding of RBI autonomy whereas Chidambaram understood it but could not always acquiesce in it. In meetings, Mukherjee’s stance was straightforward—that the Reserve Bank should ease on the interest rate to support growth. Chidambaram, on the other hand, was more nuanced; he believed that I should cut rates in acknowledgement of his efforts at fiscal consolidation, and would assert his arguments more firmly and forcefully,” Subbarao said.
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