In a season of mind-boggling scams, where the monies involved are unimaginable and when they begin to eerily resemble one another, we can safely call it a policy epidemic. The symptoms, accusations and the defence are the same in almost all the cases. And so are the prescriptions that come later. The only thing that varies between them is the name of the ministry or the name(s) of individuals who perpetrate the scandal. This is true of two of the biggest controversies in recent times—2G and Coalgate.

In theory, it is difficult for a minister to hijack a policy in a democracy. The collective responsibility of the cabinet and/or the consensus mechanism in a coalition ensures that decisions are discussed threadbare before they are passed. Even executive decisions, i.e., those taken by the cabinet or individual ministers, have been overturned or postponed because of such checks and balances. These include the moves to allow FDI in multi-brand retail and hike FDI ceiling in insurance.

However, in the allocations of 2G spectrum (2008) and captive coal blocks (2006-09) to private and public firms, the concerned ministers brazenly bulldozed policies that clearly favoured a select few. Objections and criticisms from other ministries/departments were blatantly ignored, even arrogantly dismissed. Later, the involved individuals publicly defended their decisions by trying to hide their greed behind such chimeras as public good and national interest.

In both the cases, the comptroller and auditor general of India (CAG) found major deficiencies. It concluded that spectrum was allotted in January 2008, and coal blocks between 2004 and 2011, in a non-transparent manner. The opaque processes helped private players to grab scarce resources at prices that were much lower than the market rates. Since no auction or competitive bidding was held for the allocation of the two resources, it led to huge losses to the exchequer—Rs 1,76,000 crore (final report) in telecom and Rs 1,86,000 crore (draft report) in coal.

But how did this happen in a democratic setup? What are the similarities (and differences, if any) between the decisions taken by the former telecom minister, A Raja, and PM Manmohan Singh, who held the additional charge for coal during most of the contentious period? More importantly, what are the lessons one can learn about governance and policy-making from the two examples? 

Existence of a policy vacuum
Most policy scams usually find their roots in the initial half-baked decision-making processes, which linger on and on. Shockingly, all governments realise and acknowledge this bitter truth. The NDA, UPA I and UPA II regimes failed to build a consensus among coalition partners to establish clear policies for allocating these two resources. As a result, interim, ad hoc policies that were meant to be just that, continued for years. Both Raja and Singh knew that they were operating in a grey area. 

For example, the 2G scam happened because of NDA’s 2003 cabinet resolution not being pursued to its logical end. In October 2003, the council of ministers approved a two-phase implementation of a unified licensing regime. In the first phase of six months, existing mobile and fixed line operators were allowed to migrate to a new regime; in it, they were allowed to use any technology (present and future) to offer all forms of mobile and other services.

In the second phase, the licence was to be delinked from spectrum; in essence, while the newcomers would be charged nominally for the former, they would pay the market rate for the spectrum. (“Licence” is the permission to be a telecom operator and “spectrum” is the airwaves they are allotted to offer services. In initial years, when a company got the licence it was given spectrum along with it—“linked” or “embedded” spectrum. This was to be subsequently “delinked”.)    However, the department of telecom (DoT) “did not implement the licensing regime as approved by the cabinet… overlooking the second phase. In the actual implementation, the interim (first) stage… seems to have become the final destination”, stated the final CAG report. This was also due to the failure of the subsequent UPA I to push through the Convergence Bill in parliament.

The end result: in the first phase, the fixed line operators were allowed to offer mobile services by paying an entry fee that was equal to the one paid by the fourth cellular entrant in 2001, and this became the price paid by the subsequent new entrants. In January 2008, this was fertilee ground for Raja. He doled out 122 licences (and embedded spectrum, which wasn’t delinked from the licence) on a first-come, first-served basis at the 2001 rates. Later, CAG found that this was much lower than what the market was willing to pay.

Almost concurrent to the 2G allocations, coal blocks were being given out in great numbers for captive purposes—70 up to 2005, 145 between 2006 and 2009, and one in 2010. Here again, a comprehensive law to deal with allocations was  lying in parliament since 2000 when the NDA introduced the Coal Mines (Nationalisation) Amendment Bill, 2000, in Rajya Sabha. However, the bill remained pending as it faced opposition from the trade unions and other stakeholders. It aimed to allow Indian companies to commercially mine coal, and set the parameters for fresh allocations of blocks.

Since there was no law set in stone, the government continued to follow the procedure established in July 1992 to consider coal mining applications, including for captive use. An administrative order led to an inter-ministerial screening committee, chaired by the coal secretary with representatives from other concerned ministries like power, steel and cement, which cleared these proposals. Between 1992 and 2009, only the committee was reconstituted several times to include new members.

Scuttle moves to change the system
Ministers thrive in this policy drift and hence stall all attempts to arrest it. The fact that the governments know about the existing policy lacunae and the need to fix them, means that someone somewhere in some ministry will surely try to initiate measures to bride gaps.  It is at this stage that the concerned minister(s), who wants status quo to continue, puts his/her foot down firmly. And it helps if you are a minister from a regional party propping the government.

Thus, when in February 2006 a group of ministers (GoM) was formed on telecom, its terms of reference (ToR) was to include three critical issues—vacation (and availability) of 2G spectrum, its pricing and its efficient allocation. The finance ministry insisted that “spectrum pricing was an issue which has far reaching consequences… and needed to be debated”. However, the DoT maintained that pricing “was within the normal work carried out by it” and should not be included in the ToR.

The then telecom minister, Dayanidhi Maran, somehow convinced the PM. “Thus, without the finance ministry getting a chance to contribute to the issue of pricing of spectrum, new licences continued to be issued along with the spectrum” at the old 2001 rates, stated the CAG report on 2G.

Something similar happened with the captive coal blocks. On June 28, 2004, the coal secretary held a meeting with all the stakeholders, where it was decided to allocate fields on the basis of competitive bidding (akin to an auction). A month later, the minister of state for coal asked for clarifications related to likely opposition from the power ministry—power companies were among the biggest beneficiaries of captive blocks—and the possible impact on coal prices, which were likely to go up.

By August 2004, the file was placed before Manmohan Singh, the PM and also the coal minister, who directed the bureaucrats to prepare a draft cabinet note on competitive bidding. On September 11, 2004, the prime minister’s office (PMO) spelt out the disadvantages of an auction in its note. The coal secretary dubbed them “without merits” and prepared a draft cabinet note recommending competitive bidding. On October 4, 2004, the minister of state for coal felt that a move towards competitive bidding would lead to huge delays, especially as it would require changes in the Act, and the Coal Amendment Bill, 2000, was being opposed.

But the PM was in no mood to heed his minister’s advice. In an October 14, 2004 meeting chaired by him it was decided that all applications for captive mines received after June 28, 2004, would be allotted on competitive bidding basis. Three weeks later, however (November 1), the PMO urged the coal ministry to amend the draft cabinet note. The PMO said that “as the change… will be made effective prospectively, there is no urgency in the matter”.

On February 5, 2005, Singh, in his capacity as coal minister, agreed with the October 4, 2004 note of the minister of state for coal, and felt that the ministry did not have to proceed with the competitive bidding proposal. On August 9, 2005, it was decided that the coal ministry would continue to allocate coal blocks through the screening committee until a new procedure was put in place.

Weak inputs from the law ministry
For any policy change or decision, the first stop for any minister is the law ministry. Thus, both the DoT (under Raja) and coal secretary (under Singh) sent their proposals to it. Unfortunately, the law ministry wasn’t categorical or insistent on its suggestions. Even when it thought that the policy needed to be changed, it willingly became a spectator, rather than an actor, in the ensuing drama.

In October 2007, the DoT asked for the opinion of the attorney general/solicitor general on 2G licences. The law minister replied in November 2007 that “in view of the importance of the case, it is necessary that the whole issue is first considered by an empowered group of ministers (EGoM) and in that process legal opinion of the attorney general can be obtained”. Read the words carefully; the law ministry left the option open to DoT to take the matter to EGoM.

The telecom ministry discussed it internally and concluded that the law minister’s view was “out of context”, and there was no need to go to EGoM. As far it was concerned, it wasn’t asking for a change in policy; the old policy continued and it only wanted the law ministry to suggest which one of the three options it should pursue to give out the licences. That was the end of the matter.

In the case of captive coal blocks, the response of the law ministry was confusing. Initially, in June 2004, when the coal ministry asked if competitive bidding was possible under the existing Acts and Rules, the legal advice was that an amendment of the Coal Mines (Nationalization) Act was required.

Later, in July 2006, the law ministry changed its stance. It stated that the “course to be adopted in the current case, i.e., to amend the Act or to effect changes in the administrative instructions (existing executive rules), is a matter of policy to be decided by the referring ministry”. When the coal ministry again sought a clarification the next month, the law ministry replied that it had never stated that competitive bidding can only be introduced through an amendment to the Act.

Block criticisms from other ministries
Raja had to contend with opposition from several government quarters. His bid to go ahead with licences on first-come-first-served basis at the 2001 prices was criticised by the law ministry, finance ministry and the PMO. But he stood his ground and, given the pressures of coalition politics, no one publicly moved against him. In Coalgate, the planning commission, and the ministries of mines, steel and coal supported competitive bidding. But Singh (coal minister and PM) remained unfazed and went ahead with the old procedure to allocate blocks through the screening committee.

Garb everything under national interest
The best defence against allegations of crony capitalism and/or loss to the exchequer is that it was done in national/consumer interest for the overall benefit of the economy. Thus, if Raja is to be believed, because of his decision, the mobile subscribers’ base jumped from 250 million in 2007 to 900 million in 2012, tariffs remained ridiculously cheap (as low as five paise per SMS and one paise per second for voice calls), and the earlier cartel among cellular operators was successfully broken.

In the recent past, the PMO has leaked documents that maintain that the decision to postpone competitive bidding was forced by a huge power shortage and, hence, a demand for coal. Since Coal India Ltd was unable to meet this shortfall, the coal ministry had to fast-track captive coal blocks. It was because of these efforts that the Indian economy grew by over 9 percent in 2006-07 and 2007-08. It also recovered remarkably after the global financial crisis hit growth in 2008-09 (6.7 percent), and posted over 8 percent rates in 2009-10 and 2010-11.

Another defence against the above charges is that it would have led to huge legal implications. Raja said that if the policy had been changed in 2007-08, all the applicants who had waited patiently in the queue for a licence would have gone to the courts. Singh has contended that competitive bidding required changes in the Act, and also consultations with state governments to maintain the principles of federal polity. The new policy could not have been pushed through in a hurry.

It was not a deliberate act on part of either Raja or Singh. They had no option but to carry on with the existing policies. In the case of Singh, we can at least say that as the PM, and coal minister, his government enacted amendments in the Mines and Minerals (Development and Regulation) Act in September 2010, which stated that coal blocks would henceforth be auctioned.