Dr.JP's Letter to Prime Minister

18th November 2010

Dr Manmohan Singh
Prime Minister of India
Room No. 148 B, South Block
New Delhi – 110 001

Esteemed Prime Minister Dr Manmohan Singh ji,

The report of the Comptroller and Auditor General of India (CAG) on the Issue of Licenses and Allocation of 2G Spectrum covering the period from 2003-04 to 2009-10 is a severe indictment of the monumental corruption in the issue of licenses. The CAG documented the arbitrary, unfair and inequitable manner in which these licenses were issued, and estimated a presumptive loss to the exchequer of the order of 58,000 crore to 152,000 crore.

The 2G spectrum allocation episode is only the latest in a series of revelations of corruption and abuse of authority that have been agitating public minds. The recent revelation of Mr Ratan Tata, the Chairman of the highly reputed Tata Group, only confirms how corporates are made to pay a dear price if they refuse to comply with demands for bribes.

Understandably, the Government, Parliament, political parties and media are exercised about the political fall out of the issue, the mode of enquiry and the fixing of responsibility on errant individuals or institutions. However, it is important to realise that this terrible scandal offers a priceless opportunity to cleanse the political system of corruption.

Allocation of precious and finite spectrum on a first-come, first-served basis without calling for competitive bids, arbitrary advancement of the cut-off date for considering applications, fixing of an abnormally low price for the spectrum based on 2001 price discovery disregarding the remarkable increase in telephone density in the country, failure to lay down and enforce eligibility criteria for applicants, abrupt changing of criteria with clear inside information to a few favaoured applicants to give them the benefit of first right to allocation of spectrum, and sale of spectrum by fly-by-night operators for many times the fee they paid the Government – all these are now established.

Clearly any action now should aim at punishing the culprits, undoing the damage done by ensuring that the exchequer receives the full market value of the spectrum, and preventing future acts of such gross corruption in economic decision making, particularly in relation to transfer of precious natural resources and critical infrastructure.

Therefore, in addition to whatever is being done or contemplated by the investigative agencies, Courts, the Constitutional authorities and the Government, we urge you to take the following tangible steps.

1. The licenses allocating 2G spectrum should be revoked forthwith, so that the corporates which colluded with bribe takers and caused a colossal loss to the exchequer do not benefit from corruption. A contract tainted by corruption, ineligibility of licensees and arbitrariness, and has caused injury to public property is void, because the consideration or object of the agreements is unlawful as per Section 23 and 24 of the Indian Contract Act, 1872. The Parliament and Government have sovereign powers to undo the wrong. When legitimate private assets could be nationalized as a matter of public policy, it would be perfectly legitimate and necessary to revoke licenses obtained in a corrupt manner, causing loss to the exchequer.

There are precedents of scrapping contracts when corruption and irregularities surfaced. In 2007, the defense deal involving purchase of 197 helicopters from Eurocopter worth $600 million was scrapped following the report of the Central Vigilance Commission.

However, the licensees could be refunded the proportionate license fee collected (duly deducting the portion of the fee for the period so far). Equally important, a mechanism could be evolved to protect the legitimate interests of honest buyers of the spectrum from the licensees, and of legitimate service-providers, even as public interest is protected.

2. A Windfall Profit Tax should be imposed on all licensees who sold the spectrum or equity whose sole / substantial value is based on the 2G spectrum license. This will ensure that abnormal profits made out of a vital public resource are retained with the public exchequer, and are not appropriated by private interests. This is particularly important when irreplaceable natural resources are involved, and the profits are obtained not by value addition but by mere control of public resources and monopoly. Such a Windfall Profit Tax was imposed in the UK in 1997 in respect of North Sea Oil and the monopolies in Electricity, Telecom, airports, gas, water and railways sectors.

3. A law should be enacted by Parliament making all contracts involving corruption, or loss to the exchequer void and unenforceable. This will remove all incentive for corporates to bribe any public official to get a favour. A company that will lose the bribe amount as well as the business or benefit or favaour obtained through corruption is unlikely to resort to bribery. Only then can we demand corporate integrity and create a level playing field.

4. A law should be enacted imposing a civil penalty of five times the loss sustained by the exchequer in any public procurement or transfer of natural resource, if a product is overpriced relative to the best customer of the company, or there is compromise in quality or environmental damage, or exchequer has lost money by any fraud, bribery or wrong doing. An independent competent authority can be entrusted with the responsibility to impose the penalty in all such cases.

The False Claims Act in the US has similar provisions and has worked well. An amount of over $24 billion has been recovered from corporates under this law over the past 23 years in 10,650 cases.

5. Finally, the Parliament should enact a comprehensive anti-corruption law incorporating the recommendations of the Fourth Report of the Second Administrative Reforms Commission. In particular, creation of an empowered, independent anti-corruption commission (IACC) is of vital importance. In Hong Kong creation of an effective IACC in 1974 reduced corruption within a few years.

There is evidence that significant reduction in corruption alone will enhance our economic growth rate by 1.5 to 2 percent per annum. Honesty is not merely a moral imperative; it is an economic necessacity to accelerate and sustain high growth rates and eliminate poverty.

There is a palpable public support for rooting out corruption from our public life, and all political parties are unanimous in recognizing the need to take firm and tangible steps to combat corruption.

We therefore urge you to convert the present crisis into an opportunity, and institutionalize effective mechanisms to enforce public integrity and the scourge of corruption.

In view of the importance and urgency of the issue, I have taken the liberty of circulating this letter to all Members of Parliament and the media.

With warm personal regards,

Yours truly,

Dr.Jayaprakash Narayan