Home / Opinion / Telecom auction money should be used to build infrastructure

The success of the latest auction of telecom spectrum should help the finance minister P. Chidambaram in his tough battle to keep the fiscal deficit within the level he had budgeted for in February 2013. This bonanza is perhaps the main reason why the Reserve Bank of India (RBI) decided on Wednesday to cancel a scheduled bond auction, citing the government’s “cash position and funding requirement".

The unfortunate practice of using money from asset sales such as telecom spectrum auctions or disinvestments to bridge the annual fiscal gap is a bad one. The money should ideally be used to build new capital assets that will strengthen the competitiveness of the Indian economy.

One can consider this to be a portfolio switch: the government gives up one asset to create another.

Take a look at the numbers over the past five years. The government has raised more than 78,000 crore from disinvestments. Another 1.5 trillion or so has been raised from telecom auctions. So the total money raised from asset sales is close to 2.3 trillion—not a piffling amount.

This money could have been used to build roads, schools, dams or water supply systems. It has instead been frittered away to fund the annual revenue gaps in the government budget because of the large increase in spending on stuff such as subsidies. The money has disappeared down a sink hole.

Look no further than how the 1 trillion windfall from the wildly successful 3G and 4G auction in 2010. The money was used to cover the fiscal gap that year.

How can this misuse of funds be avoided? India needs to create a new fund which will automatically receive money from asset sales. The corpus of this fund will then be used to build infrastructure.

The idea is an old one. It was first mooted by G.V. Ramakrishna when he was chairman of the Disinvestment Commission. Then Jaswant Singh put up the idea in his budget speech before the 2004 elections. Chidambaram also spoke in favour of such a national investment fund when he took over as finance minister that year.

Politicians have strong incentives to fritter away the money that comes their way from asset sales—as is bound to happen this year as well. The idea of a national investment fund should be revived so that one-time windfalls are used more productively.

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