Spectrum Auctions Not The Way To Go

By far the most interesting take on the 2G decision by the Supreme Court comes from a pink paper:

2G Scam: Supreme Court’s cancellation of 122 licences is mostly unfortunate

The Court posits auctions as the only acceptable method for fair and transparent allocation of national assets. Why ignore a draw of lots among financially and technically qualified aspirants? It equates national enrichment with the proceeds of auction.  

This is a simplistic assumption devoid of economic analysis. Low-cost telecom spreads fast, increasing, with each additional connection, the utility of being connected for everyone on the network. The result is efficiency and productivity gains across the board, leading to faster economic growth. Crores of lives improve and the government nets superior tax receipts, far in excess, over the years, of auction proceeds. Auctioned spectrum jacks up the telecom industry's capital costs, which will either raise tariffs or delay further expansion and upgradation. 

In any case, what sense does it make to transfer huge investible resources from industry to the government? 

So auctions are not the bestest methods of all?  And they tell us only now?  So sad.  But the pink one need not worry.  Our telecom guys have a neat trick through which huge auction prices can be whittled down to manageable amounts:  just take the money from our public sector banks, discussed in The 3G Scam?

The 3G Scam?

Banks nervous about telecom exposure

They need to be.  Their exposure is almost 1 lakh crore.  Half of that may be on account of loans to the winners of the 3G auction.  So one can argue that the auction only fetched half of what is claimed, at present.  And PSU banks - implicitly backed by the government - funded a large part of the 3G auction amount as the report points out.  SBI itself has an exposure of Rs 23,000 crore.  What if the loans go bad as some are already?

No wonder one never hears calls for privatisation of PSU banks. They are sitting ducks for industry to get loans from.

'CIC orders RBI to expose 100 top loan defaulters'

CIC orders RBI to expose 100 top loan defaulters

In a move to usher in transparency in the functioning of banks, the Central Information Commission (CIC) has directed the RBI to reveal the names and divulge other details of the top 100 businessmen and industrialists defaulting on repaying loans taken from public sector banks. 

The CIC has also directed the country’s Central bank to post the complete information of all such defaulting businessmen and industrialists on its web site as part of a suo motu disclosure mandated under Section 4 of the transparency law, before December 31. The RBI has been directed to update this list every year. 

“There can be no doubt that the information on defaulters received from banks are held by the Reserve Bank in a fiduciary capacity and are confidential in nature,” an RBI official had said while deciding on Kapoor’s RTI application. 

Although Information Commissioner Shailesh Gandhi agreed with the RBI’s argument that such information was fiduciary in nature, he said that exemption could not be allowed when there was larger public interest in the disclosure. 

Gandhi’s argument was that “this (disclosure) could lead to safeguarding the economic and moral interests of the nation. The commission is conv­inced that the benefits accruing to the economic and moral fibre of the country, far outweigh any damage to the fiduciary relationship of bankers and their customers if the details of the top defaulters are disclosed.” 

Absolutely.  Let the names out.  Let us see where the money is going to.  We know that SBI has an exposure of Rs 1,400 crore to Kindfisher Airlines.  Who else has taken PSU bank money?  

In fact, why restrict it to the top 100?  Put it all out there.  Maybe the said businessmen and industrialists will be more careful taking out loans in the first place.  Each public sector bank could put out its own list too.  They are already doing it for the aam defaulters : India's banking lobby asks lenders not to use tough bad loan recovery measures

The Indian Banks Association -- a lobby group for banks -- has asked lenders in the country not to use very harsh measures to recover outstanding loan amounts from their customers, after India's public sector lenders including Corporation Bank and the State Bank of India adopted 'name and shame' tactic to recover bad loans. 

The banks displayed names, photographs and other details of willful loan defaulters on the notice board of its branches from where loan amount has been sanctioned, with a view that through such exercise, the fear of social ostracisation would drive the borrowers to repay dues owed to the bank.

Banks As Public Utilities

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