BREAKINGVIEWS-India's 2G ruling may stir hornets' nest

Wed Feb 8, 2012 3:12pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Jeff Glekin

MUMBAI Feb 8 (Reuters Breakingviews) - India's judiciary is making its presence felt in the fight against corruption and crony capitalism. The Supreme Court's ruling in the 2G telecoms scam will change the way all state assets are sold in future. It could also stir a hornets' nest by reopening other old licence awards, in telecoms and other sectors.

The court ruled that there was a fundamental flaw in the first-come-first-served policy under which 2G spectrum was allocated. Anyone who obtained privileged information about the timing of the sale stood an unfair chance of success.

The court also appears to have ordered that all future sales of land, mines, spectrum and other state assets, should be conducted as auctions. Lawyers will debate how soundly this reflects the constitution. But economists ought to welcome the ruling. Auctions are the best method of price discovery. They leave little room for corruption.

What about past sales though? The court said that firms such as Vodafone, Airtel and Reliance which are using spectrum awarded in 2001 are not subject to the current judgement because they were not part of the petition under consideration. But that leaves the door open for fresh petitions. Some lawyers have said that the 2008 process was distinct from that in 2001 and the licences would therefore not meet the same fate. The 2008 sale was found to be corrupt and, while the 2001 process may not have maximised revenue, there's no evidence of graft. A public interest litigation could be filed to test that award, though.

For the central government, spectrum is the main source of revenue from asset sales. But at the state level, mine and minerals sales are important, raising $4.3 billion since 2004. The wider applicability of the court's judgement could also be tested in relation to revenue sharing agreements of oil and gas reserves, for example Reliance Industries' large gas contracts.

So while the future looks brighter in India's battle against corruption, there is a risk that the country gets bogged down in a wave of litigation on the back of the precedents set in the 2G case.

CONTEXT NEWS

-- India's Supreme Court on Feb. 2 ordered the revocation of all 122 telecoms licences issued by the government in 2008. The court said the current licences will remain in place for four months, during which time the government should decide a new system for issuing licenses.

-- The court said that "while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process."

-- The licences affected include all those held by Unitech Wireless, the Indian joint venture of Norway's Telenor and Unitech. Also affected are: Loop Telecom; Videcon Telecommunications, part of India's Videocon group; Etisalat DB, the joint venture between Abu Dhabi's Etisalat and India's DB group; S-Tel; 13 licenses held by Idea Cellular; and three held by Tata Teleservices.

-- Reuters: India court orders licences cancelled in telecom scandal

-- Reuters: ANALYSIS-Scandal blow puts Indian government in danger

-- Supreme court judgment: here

RELATED COLUMN

Spectrum of higher prices

-- For previous columns by the author, Reuters customers can click on

(Editing by Hugo Dixon and David Evans)

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