India’s Telecom Scam: How Can a Corrupt System Be Cleaned? – Part 1

I wrote an essay for India Knowledge@Wharton. From the introduction: “The telecom scam that recently forced the resignation of telecom minister A. Raja defrauded the country to the tune of nearly US$40 billion. Since telecom is an industry that links backward and forward to several others, the total economic cost could well be hundreds of billions of dollars. This scandal shows that corruption has deep roots in Indian society, but informed voters and the democratic process can help eradicate it, argues Rajesh Jain, managing director of Mumbai-based Netcore Solutions, in this opinion piece.”

Even to a nation that has long become inured through repetition to high level corruption, the numbers being reported in the so-called 2G telecom scam appear incredible. In 2008, the Union Government of India licensed the use of spectrum to nine corporations for providing mobile telephony services in 122 circles. The amount raised was around Rs. 1,658 crore (around US$370 million). The Comptroller and Auditor General of India estimates, based on the auction of spectrum for 3G services which happened subsequently, that the Indian exchequer was defrauded to the tune of Rs. 176,000 crore (around US$40 billion) in the 2G spectrum sale.

It has been alleged that A. Raja, the former minister in charge of telecommunications, awarded the licenses arbitrarily in a non-transparent process, and at prices that did not reflect the actual value of the spectrum. Prices appropriate for the much lower teledensity of 2001 (relative to 2008) were charged to give licenses to favored companies —  some of which did not even have telecom experience — on a first-come, first-served manner rather than through competitive bidding.

Continued tomorrow.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.