1/ VINOD RAI' S MISCHIEVOUS CAG REPORT ON 2G 'OPPORTUNITY LOSS' WAS MEANT TO CATALYSE THE SENTIMENT AGAINST THE UPA. IN HINDSIGHT IT DEFINITELY SEEMS VINOD RAI WAS CARRYING OUT A HIT JOB FOR THE RSS.
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Opportunity cost or just another Opportunity to defame?
2/ Opportunity cost is the cost of any activity measured in terms of the value of the next best or available alternative that is not chosen. The CAG, Vinod Rai, has used this concept to arrive at his estimate of an Rs.176, 000 crores loss in allotting the 2G spectrum. To arrive
3/ at this huge figure, there can be little doubt that Rai used the pithy logic of Benjamin Franklin explaining the cost of an action: “He that kills a breeding sow, destroys all her offspring to the thousandth generation.”
But the problem with this logic is that the State is
4/ not a Business. A Business does not have to contend with the notion of Common Good. A Business is about making a profit and making all its actions profitable. It would seem that Vinod Rai considers the Government of India a business and far as he is concerned, Andimuthu Raja
5/ killed the pig that would have begat Rs. 176,000 crores. Like most of his government and party colleagues, Raja could not resist pickings, but that is not the substantial issue here.
Where Vinod Rai’s logic is doubly faulty is that he implies that this cost forgone was
6/ passed on to the cellular phone operators. He forgets the cellular phone user who is the reason why the business exists. Now lets go back to days when the recently convicted Pandit Sukhram was the Telecommunications minister and when cellular phone circles were first
7/ auctioned at huge prices. The highest bidder for nine circles was an obscure little company called Himachal Futuristic Communications Limited (HFCL), which bid whopping Rs. 85,000 crores. But when the time came to make the down payment HFCL reneged and was allowed by Sukhram
8/ to escape unscathed without its bank guarantees being invoked. A few months later Sukhram was raided by the CBI, and he was found literally sleeping over several crores of rupees that were found under his bed. The next highest bidders did not bid as extravagantly, but the
9/ government nevertheless made a good pile out of it.
Consequently, call time rates were Rs.32 a minute in peak hours, and Rs. 16 per minute in non-peak hours. This was in the 1990’s when a rupee was worth quite a bit more. The number of cellular phone users was constrained by
10/ the high call time rates.
The NDA government that followed, thanks to Sushma Swaraj and Arun Shourie, then reversed this policy and changed the regime to a fixed onetime entry cost and revenue sharing. Consequently call time rates plunged to about Rs. 1 per minute now and
11/ cellular phone usage grew exponentially. From a few lakh users then we now have over 800 million cellular phone users. Despite this huge spread in usage, the telecom companies are not particularly profitable.
Competition has put several of them eternally in the red. But
12/ yet most of them trade at high premiums in the stock market. For how that is possible, we must ask Anil Ambani, Sunil Mittal and Rajiv Chandrasekhar who have been caught at different times illegally propping up their shares?
The average monthly revenue per user (ARPU) is
13/ now about Rs.110 per month or Rs.1320 per year, with a meager usage of about 110 minutes a month at the lowest local rates. This suggests an annual turnover of over Rs. 105,000 crores. Now for argument sake, if the call rates were to double to Rs. 2 per minute to provide for
14/ the higher entry costs that Vinod Rai says was foregone, and speaking time, already low, were to remain the same, the industry would have had a turnover of Rs. 210,000 crores. Simply this can be understood as the 800+ million Indian cellular phone users having to pay Rs.105,
15/ 000 crores extra to the operators each year.
What the Governments of India (NDA and UPA) have been doing is to pass on this benefit to the public. This is not an opportunity loss, but a benefit transferred to the citizenry. Vinod Rai misses this entirely, and instead
16/ conjured up an absurd opportunity cost of Rs.176, 000 crores.
The CAG may be on better grounds on the matter of coal mining leases. The total commercial value of the coal mined in India by CIL and others is about Rs. 80,000 crores on which the states earn a royalty of Rs.
17/ 6980 crores. CIL, which accounts for 85% of the coal mined in India, earns a profit of around 18% on sales or Rs. 10867 crores each year. Quite clearly there is a case for a much higher royalty on coal, as indeed it is for all minerals, and the State can be deemed guilty of
18/ giving away true national wealth for a pittance. But here Rai’s pique is once again only reserved for the leases to the private companies, when it is the government that is the rapacious exploiter.
While he is at it, the CAG might be better advised to study the royalty’s
19/ levied on other minerals like iron ore and bauxite. In the case of iron ore the royalty is a mere Rs. 27 per ton. The estimated cost of mining and concentrating the iron ore is another Rs. 650 per ton. The export prices are well over Rs. 5000 per ton. This should explain why
20/ the public sector National Mineral Development Corporation (NMDC) is a navaratna, as it does the huge wealth of shady operators like Galli Janardhana Reddy of Bellary. The BJP governments in Karnataka and Chhattisgarh feed off the same trough of exploitation and hence are
21/ quiet about it.
Sushma Swaraj and Arun Jaitely have never spoken in Parliament about this hugely iniquitous system that has turned the Adivasi homelands into a war zone. But why is the CAG also quiet about it?
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