Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Politics / Policy/  ‘Policymaking is nothing if there are no trade-offs’
BackBack

‘Policymaking is nothing if there are no trade-offs’

Icrier’s Rajat Kathuria speaks in an interview about the method of allocating natural resources

Rajat Kathuria says that if one of the objectives is revenue maximization, auction could be among the best routes. Photo: Pradeep Gaur/Mint (Pradeep Gaur/Mint)Premium
Rajat Kathuria says that if one of the objectives is revenue maximization, auction could be among the best routes. Photo: Pradeep Gaur/Mint
(Pradeep Gaur/Mint)

New Delhi: Responding to a presidential reference, the Supreme Court on Thursday said auction cannot be the only method of allocating natural resources and the matter should be considered on a case-by-case basis. It also said that maximizing revenue is secondary to serving the public good in allocating natural resources. The day before, Rajat Kathuria, director and chief executive at the Indian Council for Research on International Economic Relations (Icrier), a think tank, spoke in an interview on the impending verdict. Edited excerpts:

Is auctioning natural resources the only way forward?

The answer to that is fairly simple and unambiguous: no. The reason is that there are many public policy objectives of any government in the assignment of natural resources. One of those objectives could be revenue maximization and, if that is the case, it is clear that auction could be among the best routes.

But if revenue maximization is not an objective, then clearly auction is not going to be the best route for the allocation of natural resources. I can think of things like water, for instance, or even land in certain cases, where auction may not be the best route because it will have implications for the downstream users of that resource.

Is auction the most efficient way forward? What are the alternatives?

Policymaking is nothing if there are no trade-offs. So one has to take the trade-offs into account and then balance those trade-offs and arrive at a decision. In this specific case (2G spectrum allocation), there could be an argument, and an argument has been made that auctions could lead to higher prices. But it is a more transparent process if managed well.

If there is no collusion in the auction process, auctions would lead to, probably, higher prices than what the government could determine, but could create transparency in the allocation process. And it is possible that in the long run, those prices could be passed on to the consumers.

In the short run, given that spectrum is likely to be a cost that is already incurred by the players, they would naturally pass it on. A sunk cost is not something that is not going to be passed on. But it will be passed on if it can be passed on, definitely, and that would be determined by competition. And they would tend to amortize the value that they have paid for the spectrum over a period of time, over a 20-year period, and those costs will naturally be included in their costs of production and it will be passed on.

But competition will ensure that prices do not hit the roof, and calculations by Trai (Telecom Regulatory Authority of India) and calculations by other analysts have shown that the impact of even high prices of spectrum, given the large subscriber base, will not be too much on the subscriber. There will be an impact, definitely, but I do not think the impact will be too high.

The other question that you are raising is what the alternative is; that if you do not have the auction, you do not have an alternative. I mentioned that the trade-off there is that you are compromising on the integrity of the process. And that history in India, the history of assignment of natural resources in India, advises us to be cautious about using administrative processes like beauty contests, first-come-first-served, etc., to allocate natural resources.

Is first-come-first-served never a fair method in allocating resources in any context?

Again, I would say if you have zero-one situation, a binary situation, I would always hedge and say, no, that is not necessarily true. First-come-first-served could work very well in an administratively mature political environment. If everybody had complete information about the resource, about the method in which it were going to be assigned, first-come-first-served, or any other criterion where you are going to make an administrative selection, could turn out to be a good criterion for allocating resources.

But economists, especially economists who believe in the Chicago school (of economic thought), market-oriented economists would ask why you want to waste time developing these criteria (for selection) when the market will take care of assignment efficiently. But if you ask me if it is never going to be fair, I would be hesitant to give an unequivocal answer. I would say, under certain conditions, administrative allocation of natural resources could turn out to be socially better.

Are you saying that in the current political context, first-come-first-served is a no-go?

Yes. At the moment, we have not reached the maturity in our political processes to be able to transparently (allocate natural resources). There are too many situations where people try to play one against the other. There is too much of vested interest in the system.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 28 Sep 2012, 12:34 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App