Sunil Jain: Ad hoc government

RATIONAL EXPECTATIONS

The Congress party's managers have come in for a lot of flak for their short-sighted approach in, first, using the office-of-profit definition to try and fix the Samajwadi Party (SP) by getting Jaya Bachchan expelled from Parliament, and then trying to bring in an Ordinance to ensure this didn't backfire in Congress Supremo Sonia Gandhi getting expelled as well. This short-sighted approach, however, is not restricted to just this case. A similar ad hoc decision-making style can be seen in most major decisions taken by the government over the past few weeks""naturally then, the government has come across looking a bit foolish in each case. Luckily for it, though, that the BJP is so committed to suicide that it hasn't been able to build up any of the cases.

Take the Jet-Sahara deal first, since it is related to the SP's Mulayam Singh-Amar Singh duo, given how close Sahara's Subroto Roy is to them. At the time of the Jet takeover of Sahara, while rivals raised the issue of unfair trade practices since the Jet-Sahara combine would get a stranglehold over key infrastructure like parking bays and landing slots, the government seemed neutral. A couple of weeks later, the anti-monopolies' arm of the government got active and said it was inquiring into the allegations, and the word was the deal would never get cleared. Just a few days ago, however, we're given to understand the deal's been given the all-clear.

In the case of the tax holidays for special economic zones (SEZs) for exporters, it is well-known there's been a running battle between the ministries of commerce and finance, with the latter not too keen to extend huge fiscal concessions. In this particular case, it appears that while the finance ministry came around in the case of large SEZs, it was not convinced that the tax sops should be extended to small SEZs of around 10 hectares. Now whether the finance ministry was right or wrong is irrelevant, but what's important is that the rules got notified to include such small-area SEZs as well; and while several companies made their plans with this in mind, the government has now asked a group of ministers (GoM) to deliberate on the matter!

Another GoM, similarly, was set up to deliberate on the issue of whether mobile phone providers should be given more spectrum, as they were demanding; whether this should be given free, as most players wanted; or whether this should be auctioned/paid for, as Ratan Tata suggested; and on issues like whether the GSM-mobile phone firms should get more spectrum than the CDMA-mobile firms""currently, the GSM firms get double the spectrum the CDMA firms get for the same number of subscribers on the grounds that CDMA requires less spectrum. The issue is hotly contested as the CDMA firms (and ex-Trai chief Pradip Baijal) argue they are not more efficient while the GSM firms argue that when CDMA-mobiles were first allowed, this was done by arguing CDMA was five times more efficient and so the CDMA lot should get a fifth of the spectrum!

Auctioning spectrum had the added advantage that the government would no longer have to decide which technology was more spectrally efficient since firms would get the amount of spectrum they bid for""right now, when the government decides to allot spectrum in a 2:1 ratio, or 5:1, or anything in between, it is always open to the charge of playing favourites. The GoM was also supposed to work on a policy to ensure that the defence forces, who currently use a lot of the spectrum required by the mobile phone firms, could be got to vacate it, and instead use different spectrum bands.

It was also argued, correctly, that if the government persisted with the policy of handing out the spectrum free (that is, with an annual revenue share licence fee, instead of getting users to bid upfront for it), this would ensure no new players entered the market since only existing players would corner even new spectrum""that's why, despite the government hiking FDI limits in telecom, there has not been even one application to set up new mobile telecom networks.

Anyway, though the GoM was set up, even before it came up with a report, the telecom ministry finalised guidelines for a fresh allocation of spectrum. While there have been token protests from the GSM and CDMA lot, both are relieved that Tata's proposal of getting them to pay has been given the go by""for one, it saves them several thousand crore rupees, and, second, it ensures no new players come into the market. The Tatas are still protesting, but they're in a minority.

The crowning glory as far as ad hoc-ness is concerned, of course, relates to the whole issue of access deficit charge (ADC), which is the subsidy that users of telecom services in the country pay the public sector BSNL. While this column is not getting into the issue of whether the ADC is justified or not, the important thing is that, after being asked not to reduce it for months, Trai was suddenly asked to move on the matter since a high ADC meant Telecom Minister Dayanidhi Maran's pet One India project would never take off. So, the ADC and other charges got adjusted downwards, just in time for the One India launch. And, now, the government-owned BSNL says it is going to challenge the ADC reduction!

And you thought it was just the ruling party's political managers who were looking at short-term solutions all the time.

suniljain@business-standard.com