What is the 2G scandal all about?

NEW DELHI Mon Apr 25, 2011 6:46pm IST

Former telecommunications minister Andimuthu Raja (C) arrives at a court for a hearing in New Delhi February 17, 2011. REUTERS/Adnan Abidi/Files

Former telecommunications minister Andimuthu Raja (C) arrives at a court for a hearing in New Delhi February 17, 2011.

Credit: Reuters/Adnan Abidi/Files

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NEW DELHI (Reuters) - The Central Bureau of Investigation (CBI) on Monday charged Kanimozhi, the daughter of a key ally in the coalition government with handling bribes in one of the country's biggest corruption cases, the multi-billion dollar telecoms scandal that has weakened the government and put off some foreign investors.

The 2G graft scandal is one of several to have emerged in the past few months, tarnishing the reputation of Prime Minister Manmohan Singh, whose government has gone on the defensive against an emboldened opposition.

While corruption itself has been largely shrugged off by investors, the regulatory uncertainty from the review of past government decisions is a source of concern.

This month former telecoms minister Andimuthu Raja as well as executives from the Indian joint ventures of Norwegian telecoms firm Telenor and the United Arab Emirates' Etisalat have appeared in court.

Three executives from Reliance ADA, owned by Indian billionaire Anil Ambani, are also on trial in the case which police investigators said involved awarding companies valuable telecoms licences at rock-bottom prices.

Here are some questions about the scandal:

WHAT IS THIS ALL ABOUT?

The CBI says that millions of dollars were paid in bribes to ensure favours for certain firms in 2007/08, when India issued 122 new licences to offer mobile phone services in the world's fastest growing telecoms market.

CAG, the state auditor estimated India may have lost up to $39 billion in revenue -- equivalent to the defence budget -- due to violations during the allocation process.

Several licences were issued to firms who were ineligible, who had no prior experience in the sector, or who had hid material facts while applying, the auditor said.

The telecoms ministry's process of issuing licences "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner", the auditor said.

WHAT ARE THE CHARGES?

The CBI has charged those accused with cheating, conspiracy and other crimes.

Those initially charged by the CBI include Sanjay Chandra, the managing director of Telenor's India partner Unitech and Shahid Balwa, the vice chairman of Etisalat's India operations.

Raja, the former minister, has been charged with taking bribes to favour the local partners of Telenor and Etisalat. Police say the bribes were routed through companies run by Raja's DMK party, a key member of the ruling coalition led by Singh's Congress party.

On Monday the CBI charged Kanimozhi, the daughter of the head of the DMK, two more executives from DB Realty, whose parent DB Group is the partner of Etisalat, and the managing director of a south Indian television channel owned by the DMK party with handling bribes.

All the accused deny any wrongdoing. Telenor and Etisalat say the events described occurred before they invested in India.

WHAT IS THE FALLOUT?

The scandal has tarnished the Congress-led government's image, spooked investors and has led to the Norwegian prime minister writing to his Indian counterpart seeking "fair treatment" for Telenor.

Prime Minister Manmohan Singh was reprimanded by the Supreme Court for not acting quickly enough against Raja and the opposition all but shut down an entire parliament session demanding a special cross-party probe.

The government gave in to that demand. A separate parliamentary committee is also investigating the graft scandals.

This month, one of those panels summoned Ratan Tata and Anil Ambani -- two of India's most high-profile businessmen -- to answer questions on the licence allocations.

The scandal could harm Congress and its ally's chances in elections currently taking place in Tamil Nadu, which is ruled by the DMK, as voters may decide to punish the coalition over the role Raja, the former telecoms minister, played in the corruption scandal.

WHAT DOES THIS MEAN FOR INVESTMENT IN INDIA?

Regulatory uncertainty is worrying investors, as so many business deals are being investigated and there is the possibility that some may be scrapped.

This concern has hit the Mumbai stock market, which ended the March quarter as the world's worst performer.

The new telecoms minister, Kapil Sibal, could cancel several of the 85 contentious licences issued under Raja currently being studied, which would likely feed investor uncertainty about the stability of government contracts and regulations in India.

Norway's prime minister has said Telenor should not be penalised for "errors others have committed in India".

It is too early to say whether licences will be cancelled, but pressure will be on the government not to do so because operators have invested millions of dollars in rolling out networks and cancelling them would inconvenience subscribers.

(Editing by Henry Foy and Alex Richardson)

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