CAG claims 2G sale mistakes cost India almost USD40bn

11 Nov 2010

The Comptroller and Auditor General of India (CAG), having submitted a report to the government following an 18-month probe into the sale of the country’s 2G spectrum in 2008, has claimed that telecoms minister Andimuthu Raja and the Ministry of Communications (MoC) are responsible for losses of up to INR1.77 trillion (USD39.6 billion). According to India’s Economic Times, the CAG’s report argues that Mr Raja disregarded the advice of several government departments by selling the scarce frequencies at a much lower price than their actual value; nine companies were awarded pan-India Universal Access Service Licences (UASLs) in January 2008 for INR16.5 billion, a price that had been fixed back in 2001 when the country’s mobile sector was still in its relative infancy. In addition to the low concession price, the report also claimed that of the nine companies to have received licences at the start of 2008, five did not fulfil the eligibility criteria for the sale process: Loop Telecom, Unitech Wireless, Datacom, Swan and STel. The CAG said that the MoC failed to reject the ineligible applications, and according to CAG officials the watchdog may yet recommend the cancellation of all nine concessions issued in 2008.

Specifically the CAG highlighted the fact that STel, prior to the issuing of licences, had publically told Mr Raja that it would pay INR137 billion for a pan-India GSM concession. The auditor said it had based its valuation of 2G spectrum on both this offer and the recently completed 3G auction, arguing the total loss to exchequer by not following a market-determined policy was around INR1.4 trillion; the CAG said that the issuing of excess spectrum to other existing players accounted for losses of nearly INR3.7 trillion.

Concluding its report the CAG noted: ‘The minister (Raja) for no apparent logical and valid reasons ignored the advice of the ministry of law, ministry of finance, and avoided the deliberations of the Telecom Commission (the highest decision-making body of the communications ministry) to allocate 2G airwaves, a scarce finite national asset, at less than its true value on flexible criteria and procedures adopted to benefit a few operators.’

India’s Central Bureau of Investigations (CBI), Enforcement Directorate and Central Vigilance Commission (CVC), as well as the parliamentary affairs committee, are all also examining the 2G spectrum allocation issue. Further, the Enforcement Directorate has widened its study of the matter, and is now probing those foreign companies that purchased stakes in those new telcos that bagged concessions in 2008.

India, Etisalat DB (formerly Swan Telecom), Loop Mobile, Ministry of Communications (MoC), STel (India), Telenor India, Videocon Telecommunications Limited (VTL)