Saturday, September 29, 2012

Auction not the only method

SreeNair | 7:48 AM |

Earlier this year, on  Feb 2nd,in the wake of the 2G telecom scam, the Supreme Court Bench headed by Justice Singhvi had clarified that the allocation of the scarce natural resources must through the transparent market process of open auction by the Government. Consequently the court order cancelled all 122 spectrum licenses allocated during A Raja's tenure as telecom minister in 2008 and ordered their re-auction.

This has put the Government on a sticky wicket and to wade through the dilemma the government had first filed a review and later withdrew it to send a presidential reference under Article 143 of the Constitution.

The Presidential reference was made on April 12th and the hearing began in May.

The apex court had clarified that at the beginning of the hearing in no uncertain terms that it would not entertain any arguments for review of the 2G rulings on auctioning radio frequency for mobile telephony.

The 5 judge constitution Bench of the apex court headed by Chief Justice SH Kapadia in the unanimous judgment, said that the auction was a method directed only for 2G spectrum and not mandated to apply universally to all natural resources .

“ Auction could be the better option when the aim is maximum revenue ,but every method other than auction of natural resources can not be shut down.” Justice J.K.Jain of the Bench opined that "Auction could not be elevated as a constitutional mandate" maintaining that the court could not go in to the wisdom of the executive in the policy matter and decide on which is the suitable method of allocating the natural resources. Alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives,” said the court.

Again In a separate but concurrent judgement justice JS Khehar said that "Natural resources should not be disposed as a matter of charity, donation or endowment for private exploitation". The court said that when natural resources were to be made available by the state to private persons for commercial exploitation exclusively for their individual gains, the state’s endeavor “must” be towards maximization of revenue returns and auction or competitive bidding could be the way.

The country has witnessed a furor over the CAG report in the spectrum scam in 2G and the coal block allocation which saw high-decibel emotional catharsis in the Parliament and pulverized the Government and has given the regime a bumpy ride. Justice Khehar also took “judicial note” of the political hauling of the Government over the coals in the Parliament following the CAG findings on  disbursal of coal blocks .“One is compelled to take judicial notice of the fact, that allotment of natural resources is an issue of extensive debate in the country, so much so, that the issue of allocation of such resources had recently resulted in a washout of two sessions of Parliament.” said Khehar.

The government it appears have over-played its hands in consider the order as a means to squire up to the flak across the country. It is chin-up having reposed its faith in the over-reading of the verdict that the order should allow the UPA some lee-way on economic decisions frozen by the prospect of judicial overreach.

Welcoming the SC decision, Commerce Minister Anand Sharma said the judgement vindicates the Government stance. Hailing Supreme Court judgement on auction of natural resources, Telecom Minister Kapil Sibal today said the apex court has brought "constitutional clarity" on the issue.

But the order cannot be construed as a vindication of the Government policy of rejecting the competitive bidding mode whereby the scarce natural resources are at throw away prices. The CBI investigations in 2G spectrum and coal blocks have brought out that the process were arbitrary and mired in corruption and nepotism.

The caution the SC exercised is patently obvious in its verdict. The Bench said that it lacked the expertise to conduct a comparative study of different methods of distribution of natural resources to suggest the most efficacious mode and hence it was left to the wisdom of the executive.

There are various other schemes to decide the most efficacious modus operandi with each having its own flaws. Each process fits in its peculiar slot. Bidding works best when the queue is not very long while lotteries do a good job with large numbers. Queues can be jumped, lotteries rigged and auction bids fixed. None is inherently superior to the other. Lotteries and early-bird schemes tend to create a black market. Collusive bidding depreciate the market value of an asset. It has been reported that , in the last four years, Democratic Republic of the Congo lost over $5.5 billion in asset sales from its state-owned mining company to private investors in which the assets sold, on a first-come first-serve basis.

Decision on the dissemination of the scrimped natural resources is a process involved in subtle and complex economic domain on which the court felt that it will not go in detail. “The methodology pertaining to disposal of natural resources is clearly an economic policy. It entails intricate economic choices and the court lacks the necessary expertise to make them. The court cannot mandate one method to be followed in all facts and circumstances. Therefore, auction, an economic choice of disposal of natural resources, is not a constitutional mandate,” the bench said.

The apex court said the government was free to adopt the mode which would serve larger public interest while distributing natural resources and favored the open auction in most cases as more transparent when it involves private operators.


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