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Who owns the spectrum?

Who owns the spectrum?
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First Published: Tue, Nov 30 2010. 07 58 PM IST
Updated: Tue, Nov 30 2010. 07 58 PM IST
The chronicles of contemporary corruption are bound together by a common theme. They all involve natural resources whose limited supply is tightly controlled by the government—airwaves, minerals and hydrocarbon reserves. The events of the past few weeks provide ample evidence that the policies governing the control of these resources have been catalysts of sleaze and loot.
Sonia Gandhi may pretentiously worry about our shrinking moral universe, but a rational approach to the problem of corruption should start with one key question: Who owns these natural resources?
The overwhelming view is that they are the property of the nation. For example, telecom spectrum and gas fields cannot be private property. They are endowments of nature. Companies should pay fees to use them. Fair enough. But what is also important is that these resources are not the property of the government either, irrespective of what the political class may believe. Natural resources belong to Indian citizens and the government is just an agency that represents the economic interests of citizens.
That is a decent arrangement as long as decent people are in charge. There is no reason any longer to believe that the government allocates national resources with our economic interests in mind. We have what economists call the agency problem. Citizens have little say in the way natural resources are used. We have a situation that is similar to the corporate problem of managers running companies to maximize their own earnings rather than those of the shareholders who have appointed them.
The most obvious way to get around the agency problem is to free the process of leasing out natural resources from government control and place independent agencies in charge of it. Independent boards that open all relevant decisions to public scrutiny should run these agencies. Further, the revenues generated from telecom spectrum fees and mining leases should be placed with a fund that is outside the general budget of the government.
The relevant model here is the Alaskan one. The state of Alaska in the US established a permanent fund in 1976 to ensure that politicians did not fritter oil revenues away. At least a quarter of the money the state gets from oil concessions has to go into this fund, which was set up through an amendment of the state constitution. The Alaska legislature debates how the income earned by the permanent fund—with assets of close to $30 billion—is to be spent. Some money is earmarked as a dividend that is paid out to each citizen of the state.
India does not have to copy each element of the Alaskan model, but the general idea has two benefits. First, the right to use natural resources will be allocated or auctioned in a transparent manner. Second, the money raised will be used for important projects rather than used by the government of the day to fund subsidies and wasteful expenditure.
A bit here on the second point. The second supplementary demand for grants of Rs45,000 crore tabled in Parliament on 16 November comes after an earlier demand for Rs68,300 crore tabled in August. This means that government expenditure has likely overshot its budgeted level by at least Rs1.13 trillion so far this fiscal. This is more than the Rs1 trillion the government collected from the wildly successful auction of spectrum for 3G telecom services. It was a windfall that the government has frittered away, a fact that has been buried under the avalanche of reports on various scams.
The money raised through the 3G auctions should ideally have been spent on national projects that would provide long-term benefits, be it linking our rivers, funding new schools or promoting green communities, to give a few examples. It has unfortunately been used to oil the political gravy train.
An independent agency to sell rights to use natural resources and an independent fund to manage the money from such leases should help limit at least one area of government corruption and ensure that windfalls are not blown away.
Sure, that still leaves big playing grounds such as defence and infrastructure contracts. And the sort of daily corruption that the poor live with—be it paying off a police officer so as to continue to run a roadside stall or the comfort money paid to minor bureaucrats to get access to land records—needs another set of reforms.
This column has often described Indian capitalism as oligarchic and the Indian state as rentier. Empirical research shows that capitalism does not gain legitimacy in countries where people believe that business groups have succeeded through corruption. The sordid tales of corporate influence in government and the scandalous allocation of national resources are issues that can no longer be swept under the carpet. At stake is the very legitimacy of Indian capitalism in the eyes of ordinary citizens.
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at cafeeconomics@livemint.com
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First Published: Tue, Nov 30 2010. 07 58 PM IST