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Does India Need A Telecom Ministry?

Telecom Minister A. Raja finally resigned yesterday after what seemed like doggedly denying wrongdoing and corruption in 2G spectrum allocation. The media has been jubilant about having an impact on the Government, claiming credit for exposé after exposé that has forced ministers to quit.

But something has been lost in translation – is it good for Indian citizens if the government maximized revenue at all costs when allocating spectrum to telecommunication companies? What is the purpose and role of government, and how should the government allocate public property such as spectrum, land or mines when rights to it are not properly defined?

We need to look at the history of the mobile telephony boom in India to answer these questions. In 1998, India had a tele-density of 1.8%, or less than 2 out of 100 people had telephones. In old movies, it’s common to see people shouting into the phone to be audible to the person on the other end. “Trunk calls” had to be booked well in advance, and were unaffordable for most Indians. International calling was prohibitively expensive.

Today, India’s tele-density number stands at over 60%, and calling rates are among the lowest in the world. The sheer magnitude of growth is mind-numbing – India has added twice as many telephones as the total population of the United States in only 10 years. How was this possible?

Contrary to what Rahul Gandhi would have us believe, the New Telecom Policy of 1999 opened the floodgates for explosive growth. The Government at that time did not choose revenue maximization via licence issue, but went for revenue-sharing to nurture a market where investment was considered highly risky. India in 1999 was not the magnet for capital it is today. In fact, the outgoing Telecoms Minister has also praised the 1999 New Telecom Policy. The Government back then also cut taxes on the import of mobile phones and made it easier for companies to procure communications equipment.

Which brings us to the next question – if one puts aside for a moment charges of personal corruption against the Minister, was Raja’s policy of not maximizing revenue a flawed one? We should remember that the purpose of the government is not to maximize revenues at any cost, just because it can – government should be a facilitator of private enterprise and a regulator of markets. We should be concerned when the Finance Minister says that he has an infinite appetite for taxes.

It seems like Raja issued licences at a heavy discount and engaged in under-the-table dealings to enrich himself. Aside from personal profiteering by Raja, the policy of carrying on the 1999 New Telecom Policy was more sensible relative to maximizing the government’s revenue. A case can be made that since many of the risks in the telecoms sector have now been mitigated, Raja should have pursued a revenue-neutral policy, offsetting capital raised via auction with tax breaks given to telecommunication companies, if one agrees that the purpose of the policy is to increase telephone accessibility to obtain full tele-density as soon as possible.

Commentary that the 3G and broadband auctions raised vast sums of money for “the people of India” and the “national exchequer” is hogwash, because that money has been taken from the people of India in the first place. In fact, lower-income groups and the aam aadmi now likely have been priced out as consumers of 3G data services, because the Government made it very expensive to start up. Even entrepreneur Sunil Bharti Mittal has said that the 3G auction design was faulty.

The consumers of cellular and broadband services and shareholders of telecom companies have paid the money to the Government of India. Please don’t believe anybody who says Raja caused a loss to the “national exchequer”,  because that money would probably have come from YOUR pocket! The contention that government knows better than citizens what they should be doing with their money is paternalistic and false.

It’s important to understand this because just the way India did not have enough telephones 10 years ago, there are many other products and services which the economy requires and consumers will demand. There are also fundamental needs such as access to health care and finance. The government simply cannot provide for all these products, services and needs given the speed and efficiency with which they have to be delivered besides the himalayan scale. Younger people cannot recall the days when it took years to get a telephone connection. Sectors such as retail, banking, rail transportation and mining could use a healthy dose of liberalization, and that’ll pave the way for entrepreneurs to step in.

Raja deserved to go because of what is likely serious personal impropriety. Before panning Raja for not taking enough money from the people of India, we should think about why it is not great for the government to maximize revenue at all times and all costs, and what the alternative policy should be. This issue is bound to come up again in a different sphere, and the media, the Opposition in Parliament as well as individual citizen-voters should think it through rather than shooting from the hip. Finally, Telecom Ministry should be disbanded and the sector’s regulation mandated fully to TRAI. Do we really need a separate Ministry for it? It’s time to put the “A” back in TRAI, which stands for Telecom Regulatory Authority of India.

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