National Campaign Against Corruption

Q. What is the 2G Spectrum Scam?

Ans. In 2008, the union government awarded pan India licenses and second generation telecom spectrum to 9 companies in 122 circles for offering mobile telephony services. These licenses were awarded in an arbitrary and non-transparent manner for a paltry sum of Rs.1658 crores, which was the price discovered in 2001, when the teledensity was very low. This abnormally low price was fixed without taking into account the remarkable increase in teledensity in the country, and the precious and the finite spectrum was allocated on a first-come, first-served basis without calling for competitive bids and without regard to experience in telecom sector. The government has also failed to lay down eligibility criteria for applicants and arbitrarily advanced the cut-off date for considering applications. The subsequent sale of spectrum so cornered by fly-by-night operators for many times the fee they paid had caused enormous loss running into tens of thousands of crores of rupees to the public exchequer.

Based on the subsequent auction of airwaves for third generation (3G) services, which fetched nearly Rs.63000 crores, and that for broadband access, which fetched over Rs.35700 crores, the notional loss to the exchequer due to under pricing of 2G spectrum was estimated by the CAG to be a whopping Rs.160,000 crores !!


Q. Can the 2G licenses be cancelled?

Ans. Yes. Under Section 23 and 24 of the Indian Contracts Act 1872, a contract becomes void if it is tainted with corruption. The Government can cancel the licenses and take back the 2G spectrum thus allotted, and return the license fee to the licensees after deducting fee for the period they used it. Revoking the allocation in public interest is necessary, fully
justified, and legally tenable.


Q. How do we recover the lost money?

Ans. The government can recover the lost money by fresh allocation of 2G spectrum through international competitive bidding after laying down transparent eligibility criteria in consultation with TRAI (Telecom Regulatory Authority of India). Also, the government can recover the excess profits obtained by the licensees, through imposition of a ‘windfall profit tax’.


Q. What can be done to punish the guilty and prevent such scams from recurring in the future?

Ans. The government can immediately take up the following measures to prevent recurrence of such scams and frauds:

Enact a law under which any license/lease of natural resources by the Government shall become void if there is evidence of corruption/fraud/collusion/loss to the Government. The fear of losing licenses/leases obtained with illegal money will deter corporates from indulging in corruption.

Enact a Windfall Profits Tax law (on the lines of the UK law 1997), which will provide for stiff taxation of windfall profits earned by corporates in the exploitation of natural resources either because of monopoly or a change in the global economic environment. The companies that cornered the 2G spectrum licenses through questionable means and sold them within weeks for astronomical sums should be subjected to the proposed windfall profits tax. Such a law will also help tax the abnormal profits made in the mining and other sectors.

Enact a False Claims Act (on the lines of the U.S. law). If the exchequer incurs any loss because of fraud or misrepresentation or violation of the due process as determined by an independent, competent authority, the guilty will have to pay a civil penalty equivalent to three to five times the loss sustained. The U.S. Government has collected over $24 billion from corporates under this Act.

Enact a comprehensive anti-corruption law and create an Independent Anti-Corruption Commission (IACC). IACC set up in Hong Kong in 1974 reduced corruption within a few years. There is evidence that significant reduction in corruption alone will enhance economic growth rate by 1.5 to 2 percent per annum. Recent estimates indicate that nearly Rs.9.7 lakh crores of tax evaded money earned through corruption and dishonest business practices is stashed away outside India debt. Honesty is not merely a moral imperative; it is an economic necessity to accelerate and sustain high growth rates and eliminate poverty.