Corporate Nov 28, 2012
Why is everyone so obsessed with the Rs 1.76 lakh crore 2G loss figure that they are suggesting that the Comptroller and Auditor General (CAG) does not know his oats?
That the Congress used the figure after the "failed" 2G auction is understandable, but should right-wing economists too persist with the myth that the CAG was talking nonsense?
An estimate is an estimate. And Rs 1.76 lakh crore was one of four estimates made by CAG, not the only one. But everyone forgets that.(Read the relevant part of the CAG report on the 2G scam here).
In an article in The Indian Express, Surjit Bhalla, Chairman of emerging market advisory firm Oxus Investments, takes pot shots at the CAG for the Rs 1.76 lakh figure, when the final auction receipts this month was much, much lower. The receipts were just over Rs 9,400 crore.
According to Bhalla, in 2001, spectrum was sold at Rs 1,900 crore (for 5Mhz, calculated from the actual price of Rs 1,658 crore for 4.4 Mhz). Inflating this for increases in nominal purchasing power since then, the 2008 price - when A Raja gave it all away for Rs 1,658 crore again - should have been about Rs 4,200 crore.
He scolds the CAG for claiming Rs 1.76 lakh crore and says: "The point simply is that whenever any analyst computes any number, and especially the lead accountants at the CAG, they should do a "smell" test to see if the number is not garbage. It would have been obvious to the most casual observer that Rs 1.76 lakh crore, by being 44 times the approximate ballpark figure of Rs 4,200 crore, was nothing short of utter, well, garbage."
Bhalla then goes on to suggest that CAG should have been more careful, since in "this brave new world, there is no place to hide one's fallibilities."
Well, Mr Bhalla has no place to hide either - for his figures too are way out.
First, he confuses the total loss figure computed for several hundred Mhz of spectrum given to many licensees in 2008 with the Rs 4,200 figure he says would have been appropriate for 5Mhz of all-India spectrum for one operator.
Second, Bhalla is clearly trying to give the dog a bad name and hang him. It is one thing for the Congress to hold the CAG to this inflated number to make a political point, quite another for Bhalla to pretend that this was all that the CAG said.
If you read the CAG report, you will find not one figure (Rs 1.76 lakh crore) but four loss estimates. The four estimates of presumptive loss are Rs 67,364 crore, Rs 69,626 crore, Rs 57,666 crore, and Rs 1,76,645 crore.
The first overall loss estimate of Rs 67,364 crore was based on an offer by S Tel - owned by C Sivasankaran - to voluntarily pay Rs 13,752 crore over and above the spectrum charge/revenue share payable if it was allotted pan-India GSM spectrum of 6.2 Mhz. S Tel even said it would pay more, if someone countered its offer with a higher bid.
But even these numbers don't tell the whole story.
The Rs 1.76 lakh crore is a composite figure that includes the following: Rs 1.02 lakh crore of losses from Raja's 122 new licences; the rest of the computation is for losses on dual technology licences and for spectrum given beyond the contracted 6.2 Mhz.
So the figure to compare is Rs 1.02 lakh crore first, not Rs 1.76 lakh crore. In the case of the other loss estimates, the relevant figures ranged from Rs 33,000-40,000 crore (excluding the dual technology and payment for excess spectrum) - which, incidentally, is what the government was hoping to earn this year from spectrum sales.
Given this, to hold the CAG responsible only for the Rs 1.76 lakh crore is unfair. If the CAG's numbers are crazy, so was the government's expectation that it would earn Rs 40,000 crore from it this year.
Now let's see what Bhalla himself thinks should have been the purchasing-power based auction price for 2012: he says it should be around Rs 7,000 crore for 5 Mhz of national spectrum.
But this is what the government earned by selling spectrum in only half of India.
Bhalla's figure compares well with the Rs 6,994 crore actually realised by the auction from the circles that were bid for, according to Nripendra Misra, former chairman of the Telecom Regulatory Authority of India (Trai), who wrote an article in Business Standard explaining why the auction was not a flop.
This is against the government's reserve price of Rs 14,000 crore - and the gap between Rs 6,994 crore and Rs 14,000 crore is entirely accounted for by the fact that Mumbai, Delhi, Rajasthan and Karnataka received no bids.
Once these circles are again put up for auction - even if the reserve prices are lowered - surely Bhalla's Rs 7,000 crore figure will be easily exceeded?
The moral is simple: even economists seem to be comparing apples with oranges and blaming the CAG for this.