FACTBOX - PM dragged into huge telecoms scandal

NEW DELHI Fri Nov 19, 2010 3:21pm IST

India's Prime Minister Manmohan Singh speaks during a news conference in New Delhi May 24, 2010. REUTERS/B Mathur/Files

India's Prime Minister Manmohan Singh speaks during a news conference in New Delhi May 24, 2010.

Credit: Reuters/B Mathur/Files

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NEW DELHI (Reuters) - Prime Minister Manmohan Singh has been forced to explain to the Supreme Court his failure to probe a huge telecoms scam, as the investigation into a $31 billion scandal gathers pace.

Here are some details of the scandal, the investigation, and the potential fallout:

WHAT IS THE SCANDAL ABOUT?

Former Telecoms Minister Andimuthu Raja is accused of selling 2G telecom licences at deliberately low prices to companies, some of which were ineligible, during the 2007-2008 tendering process. Raja, who was sacked at the weekend, denies the charges.

An audit report into the licence sales, released on Tuesday, estimated a loss to the state of up to $31 billion, and has stoked opposition demands for a full-scale parliamentary investigation.

HOW IS THE PRIME MINISTER INVOLVED?

Opposition MP Subramanian Swamy says he wrote to Singh in 2008 calling for an investigation and prosecution of Raja. He says he only received a reply in March this year, 16 months later, that said there were insufficient grounds for a probe.

The Supreme Court on Tuesday took the rare step of publicly criticising Singh for his "alleged inaction" in response to Swamy's requests, and then called him to defend his delay through an affidavit to the top court.

WHAT CAN THE COURT DO?

India's attorney general, the country's highest legal officer will file the affidavit on behalf of Singh by Saturday, before appearing before the court in person on Tuesday.

The court will examine the evidence of Singh's interactions with Raja, and the validity of Swamy's charge that the prime minister failed to act on his complaint.

The court cannot prosecute the prime minister but could say he failed to investigate Raja. Any suggestion that Singh ignored a case for prosecution would deal a severe blow to his reputation and call his leadership into question.

HOW HAS IT AFFECTED PARLIAMENT?

Demands from the opposition for a Joint Parliamentary Committee (JPC) to probe the scandal, and continued protests over Singh's alleged inaction, have stalled parliament for the first 10 days of the winter session.

The storm threatens to cut short the current session, putting at risk important bills such as an overhaul of India's mining regulations, a banking bill to improve the capital raising capacity of banks and legislation enabling free and compulsory education for children.

WILL THIS WEAKEN THE GOVERNMENT?

Raja is a member of the DMK, a regional party from Tamil Nadu that helps give the Congress party a majority in parliament.

While Singh's coalition won a strong mandate at the last general election, his government requires the continued support of regional parties such as the DMK to prevent a united opposition scuttling reforms.

Opposition politicians have claimed Singh failed to act against Raja because he feared upsetting his coalition partner.

While Congress needs the support of its coalition allies, the party is mindful that in 1989 it lost a general election partly due to a scandal over gun contracts involving associates of then Prime Minister Rajiv Gandhi who were accused of taking bribes.

HOW HAS THE MARKET REACTED?

Following the court's order to Singh, shares in mobile operator Reliance Communications and Unitech closed down 4.9 and 4.2 percent respectively on Thursday. Both Reliance and Unitech were noted in the report as having benefited from the alledged scam. Both deny the accusations.

Investors fear that firms who have benefited from the scam may be forced to pay a hefty penalty that will severely impact their earnings in a highly-competitive telecoms market.

India's telecoms minister has said he will consider cancelling any licenses found to have been obtained through illegal means, adding to investor uncertainty.

HOW MIGHT IT AFFECT SINGH?

The Congress party has given Singh its full support, and rubbished suggestions of him stepping down.

Opposition parties have refrained from publicly calling for Singh's resignation, but if the Supreme Court finds evidence that he was aware of Raja's alleged illicit activities, the calls for him to step down will significantly increase.

Whatever the court decides, his involvement in the scandal has undoubtedly damaged his previously incorruptible reputation.

(Writing by Henry Foy; Editing by Paul de Bendern and Andrew Marshall)

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