2G Spectrum Scam

Introduction : The 2G spectrum scam in India involved the issue of 122 licenses by the ruling Congress-led UPA alliance of the 2G spectrum to 85 companies including many new telecom companies with little or no experience in the telecom sector at a price set in the year 2001. The scam involved allegations regarding

the under pricing of the 2G spectrum by the Department of Telecommunications which resulted in a heavy loss to the exchequer, and the illegal manipulation of the spectrum allocation process to favour select companies the telecom ministry's process of issuing licences "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner," the auditor said.

Politicians, Ministers and Parliamentarians involved:

Andimuthu Raja, Union Cabinet Minister for Communications and Information Technology : The Comptroller and Auditor General holds Raja personally responsible for the sale of 2G spectrum at 2001 rates in 2008, resulting in the previously mentioned loss of up to Rs. 1.76 lakh crores (US$40 billion) to the national exchequer. In August, 2010, evidence was submitted by the Comptroller and Auditor General (CAG) showing that Raja had personally signed and approved the majority of the questionable allocations. Kanimozhi Aravindhan, Member of Rajya Sabha : On April 25, 2011 Kanimozhi was named as a co-conspirator in the supplementary chargesheet filed by the Central Bureau of Investigation (CBI) in connection with the 2G spectrum case. The chargesheet submitted before the Supreme Court establishes how Rs 200 crore connected with the scam traveled from a partnership firm of businessman Shahid Balwa of Swan Telecom to the Karunanidhi family-owned Kalaignar TV. She has been charged with section 7 and 11 of the Prevention of Corruption Act. The sections deal with acceptance of alleged gratification.

What was the fallout ? The report sparked political outrage and the main opposition Bharatiya Janata Party allbut-shut an entire session of parliament demanding a special parliamentary probe. Raja was forced to resign and was arrested over the report. The telecom ministry is considering whether to cancel some 85 licences which the audit report says were issued to firms which were ineligible for them. Many of India's biggest business names have been questioned, including billionaires Anil Ambani, chairman of Reliance ADA group, and Prashant Ruia, chief executive of Essar Group. A parliamentary panel probing the scandal questioned Ratan Tata as well as Anil Ambani.

What does it mean for politics ? Singh and the ruling coalition have been weakened by the events, and the BJP is seen as having regained political momentum it had lost after defeat in the 2009 federal elections. The Supreme Court criticised Singh for not acting quickly enough against Raja, a rare censure that was picked up by the BJP to accuse the government of shielding corrupt officials. The attacks have nearly paralysed the government but it is not in danger of collapsing as its slim majority is not expected to see defections by coalition partners and no one, including the BJP, wants a federal election now. The scandal has also touched Raja's regional DMK party, a leading ally of the ruling Congress party. Police say some of the bribes were routed through the DMK's television channel, controlled by the wife and daughter of the DMK party chief. DMK rules the large southern Tamil Nadu state, which goes to polls in April. The corruption cases could affect the electoral performance of the DMK-Congress coalition there. What does this mean for investment in India ? While corruption itself has been largely shrugged off by investors, the regulatory uncertainty from the review of past government decisions is a source of concern to investors. The benchmark Mumbai stock index ended the March quarter as the world's worst performer, weighed down in part by worries over fallout from a spate of scandals. If the telecom ministry does decide to cancel some or all of the 85 licences it is scrutinising, questions will be raised on whether foreign investors can trust Indian government contracts. The licences under review include those now held by Telenor and Etisalat's local ventures. It is too early to know whether licences will be cancelled, but pressure will be on the government not to do so because operators have invested millions of dollars in rolling out networks and cancelling them will inconvenience subscribers. The telecom ministry is also mulling imposing charges for spectrum it granted to telecom firms in the past and has levied fines on newer firms for not rolling out networks quickly enough. For years, India gave operators spectrum beyond contracted levels free of cost as they added subscribers.

If the spectrum charges are imposed, market leaders Bharti Airtel and Vodafone would have to pay hundreds of millions of dollars in back-charges. For newer entrants, hefty fines could strain their finances and force them to exit. Bureaucrats involved:

Siddhartha Behura, Civil Servant (IAS officer of 1973 batch UP cadre) : He was the Telecom secretary who served in the DOT at the time of the 2G allocation. Pradip Baijal, Civil Servant (IAS officer of 1966 batch MP cadre) : He is alleged to have recommended policies that favored certain Telecom companies when he was heading the TRAI. Post retirement, Baijal joined Noesis, a consulting firm. Raja has made references to Baijal's decisions in 2003 as the basis for his decisions in 2008; something which has been attacked by Arun Shourie and several media pundits. The houses and offices of the bureaucrat were recently visited by the Central Bureau of Investigation as part of their investigations. However, Baijal is expected to get a clean chit in this issue R K Chandolia, Civil Servant (IES officer of 1984 batch cadre) : He was private secretary of Raja during UPA-I when the licences were awarded. When Raja became the Telecom Minister once again in UPA-II, Chandolia had been promoted to the Joint Secretary rank. Raja re-designated him Economic Adviser, that gave him the charge of all important policy-related work. Chandolia interacted with all the licensees. It is said that it was Chandolia who, from DDG-access services A K Srivastava's room, had handed out letters of intent to representatives of various companies.

Corporations involved:

Allianz Infra Aircel Dishnet Wireless Loop Mobile Sistema Shyam Mobile (MTS) Sistema Mobile Russia Reliance Communications S Tel Swan Telecom Tata Tele Services Unitech Group Videocon Telecommunications Limited Vodafone Essar Virgin Mobile India

Corporate personalities involved:

Anil Ambani - Reliance Group (ADAG) Ratan Tata Shahid Balwa - Swan Telecom (now Etisalat DB) Vinod Goenka - Swan Telecom (now Etisalat DB) Venugopal Dhoot - Videocon Group Prashant Ruia - Essar Group Sanjay Chandra, Managing Director of Unitech Ltd and Unitech Wireless

Politicans, Ministers and Parlimentarians involved:

Dayanidhi Maran, former Union Cabinet Minister for Textiles : The main allegation revealed by Tehelka magazine and followed up in several other reports, is that Maran forced C Sivasankaran, owner of Aircel, to sell the telecom company to Maran's Malaysia-based friend T Ananda Krishnan in 2006. The reports allege that Maran deliberately delayed issuing spectrum licenses to Aircel's sister concern, Dishnet Wireless, when it was owned by Sivasankaran. He issued the licenses soon after it changed hands to Ananda Krishnan who owns Maxis. P. Chidambaram, current Union Cabinet Minister for Home Affairs : Subramaniam Swamy states that when the 2g Spectrum rate was finalised, P.Chidambaram was the finance minister of India and he had a major role in deciding the spectrum price with A.Raja. Subramaniam alleges that Chidambaram had received kickbacks and undervalued the spectrum cost.

Petitioners to 2G scam:

Subramaniam Swamy, activist lawyer and politician, whose letters to the Prime Minister demanding action and affidavits and cases in the Supreme Court brought the issue into the public limelight. Paranjoy Guha Thakurta, a journalist who was one among the very first to write on the irregularities in the awarding of 2G spectrum allocation by the Telecom Ministry. He is also one of the petitioners in the 2G PIL currently being heard in the Supreme court. Prashant Bhushan, on behalf of the Centre for Public Interest Litigation. Anil Kumar, on behalf of the civil society organisationTelecom Watchdog Others:Several eminent people like former chief election commissioners J.M. Lyngdoh, T.S. Krishnamurthy and N. Gopalaswami and former central vigilance commissioner (CVC) P. Shankar are also petitioners in the suits filed by civil society groups.

Loss to Exchequer: The Controller and Auditor General of India used three different methods to assess the presumptive loss to the exchequer resulting from not auctioning 2G spectrum.[19] The first method was based on the fact that S Tel, one of the licensees, explicitly offered to pay significantly higher license fees for the spectrum. Based on the fees offered by S Tel, the CAG estimated the loss to the exchequer at 67,364 crore (US$15.02 billion) The second method was based on the price recovered by the 3G auction in 2010. The CAG reasoned that since 2G is really 2.75G (EDGE), its price should be comparable to that of 3G licenses. Based on this method, the CAG estimated the loss to the exchequer to be 176,000 crore (US$39.25 billion) The third method was based on the fact that some of the licensees received FDI in the form of equity, shortly after the spectrum allocation. The CAG reasoned that this equity infusion was entirely due to the value of the allocated spectrum; this can be construed as re-sale of the spectrum by the licensee, and hence was a valid basis for assessing loss to the exchequer. Based on this method, the CAG estimated the loss to the exchequer to be anywhere between 57,666 crore (US$12.86 billion) (based on Etisalat's investment in Swan Telecom) and 69,626 crore (US$15.53 billion) (based on Telenor's investment in Unitech). For its part, the Congress-party led government has publicly defended itself on this count and Kapil Sibal, who replaced A. Raja as the communication minister, has refuted the CAG reasoning. He has also justified his government's decision not to auction 2G spectrum as being in line with the policy guidelines laid down by the 10th Five-Year Plan. Response to scam: In early November 2010 Telecom Minister A Raja resigned. In mid November the controller Vinod Rai issued show-cause notices to Unitech, S Tel, Loop Mobile, Datacom (Videocon), and Etisalat to respond to his assertion that all of the 85 licenses granted to these companies did not have the up-front capital required at the time of the application and were in other ways illegal. Some media sources have speculated that these companies will receive large fines but not have their licenses revoked, as they are currently providing some consumer service. In response to the various allegations, the Govt of India has replaced the then incumbent Telecom minister, A. Raja with Kapil Sibal who has taken up this charge in addition to being the Union minister for Human Resources Development.Mr Sibal contends that the

"notional" losses quoted are a result of erroneous calculations and insists that the actual losses are nil. The CBI conducted raids on Raja and four other telecom officials - former telecom secretary Siddharth Behura, Raja's personal secretary R K Chandolia, member telecom K Sridhar and DoT deputy director general A K Srivastava on 8 December 2010.Kanimozhi, DMK MP and Karunanidhi's daughter, was arrested and sent to Tihar jail by a Delhi court which dismissed her bail plea in the 2G spectrum scam, saying there was a possibility of witnesses being influenced considering the "magnitude" of the crime. P.A.C. (Public Accounts Committee): Public Accounts Committee, a 21-member committee, with chairman as Murli Manmohar Joshi, was formed to investigate, independent of other committees like JPC. The chairman submitted a draft report on 2G scam to Lok Sabha Speaker on Saturday 30-04-2011, and insisted that it be tabled in the Parliament. UPA members' claimed that the report had been "rejected", and 11 MPs of same committee(majority out of 21) had "rejected" the report which was termed as "unconstitutional" by MM Joshi pointing out that such a possibility does not exist till the report is "read" by members and "discussed" para by para. Defending his action of calling witnesses from diverse fields in connection with the 2G scam probe, Joshi said it was the duty of the PAC to "trace and examine the way the money of common man is spent". He alleged that on 28-04-2011, during the last meeting of the committee, ministers passed on "chits" and called up PAC members to speak and behave in a particular manner; that said trouble started when a decision was taken to call top officials of the PMO, Cabinet Secretary, Attorney General and CBI director for questioning. A minister reportedly commented that the PAC draft report will be thrown in the dustbin, to which the chairman regretted and questioned if Parliament's proposals and then Supreme Court orders would be given the same treatment. Impact on stock markets: The first casualty in Stock Markets once Raja was arrested was DB Realty. 20% fall in the stock prices of DB Realty. Sun TV had its shares fall by 10%. Sun TV COO refused the allegations. Swan Telecom Chief Balwa was arrested on Feb 8 and this led to rumours of links with Anil Ambani's Reliance ADAG and it led to 20% fall of his stocks . Its reported that nearly 2 Billion USD was eroded from his stocks . Spicejet stocks went down after reports of investigation on Maran's recent takeover of Spicejet.