Tuesday, August 14, 2012

Thursday, August 9, 2012

True-False Exercise Aug 9 2012

Read the passage carefully and solve the questions that follow. (Exercise Solving time: 4 minutes)

The Union Cabinet’s decision to fix Rs 14,000 crore as the base price for 5 Megahertz of 2G spectrum in the upcoming auctions must surely bring closure to the contentious debate over exactly how much the 2G scam cost the exchequer. For one, it validates the Comptroller and Auditor General’s Rs 1.76 lakh crore upper-end loss calculation and methodology for the 2008 2G spectrum sale. Broken down, the CAG’s figures lead to a Rs 3,350 crore/MHz value for 2G spectrum. Ironically, the same government that had discredited the CAG, splitting hairs between ‘notional’ and ‘presumptive’ loss, has now itself estimated the value of spectrum at Rs 2,800 crore/MHz. Except that this is just the price at which bidding begins. The expectation is that the final bid price will be higher. The Cabinet seal for a high base price, supported by the Telecom Regulatory Authority of India’s rigorous analysis of a near negligible increase in customer tariffs, confirms that spectrum was as valuable in 2008 as it is now. This should effectively silence the claims of Cabinet ministers and even some economists that high spectrum costs would lead to higher tariffs. If tariffs didn’t go up in 2010 after the 3G auctions, they wouldn’t have gone up in 2008, simply because the bid amount is amortized across the 20-year licence period.
Spectrum pricing should be determined by scarcity and consumer tariffs by competition and if that fails, through TRAI intervention. The government has itself established the flimsiness of its excuse that revenue must be foregone in order to subsidise consumer tariffs for spectrum and other natural resources. Another important learning is that institutions must be allowed to do their job free from political pressure. Investigating and estimating losses to the exchequer on account of flaws in policy implementation are very much in the CAG’s domain. Telecom Minister Kapil Sibal’s attempt to discredit the CAG at a press conference in January 2011 by insisting there was “zero loss” from A. Raja’s 2G spectrum sale did as much damage to the credibility of the government as the original audit report. Since the United Progressive Alliance government is reluctant to learn from the CAG — whom it has ridiculed without remorse since November 2010 — or the Supreme Court, whose licence cancellation judgment of 2012 it challenged immediately through three different petitions, it is best that it learn from itself. And the top lesson is this: if due process — including the engagement of an independent regulator and the adoption of a transparent price discovery mechanism — is followed, scams and shame can be avoided.
Which of the following statements is/are true in the light of the passage.
1. CAG’s estimate of spectrum value is exactly equal to the government’s current estimate.
2. Union Government’s decision to peg the base price at Rs. 14000 crore has vindicated Kapil Sibal’s theory of zero loss in 2008 2G spectrum auction.
3. CAG’s estimate of ideal base price for 2008 2G auction has been proved right by the current price set by the government.   
4. Consumer prices should be directly determined by TRAI.
5. The fear that tariffs would increase due to increase in auction price is not justified.