The 2G scam – Learning’s for Free market system

Lot has been talked about the alleged corruption on the 2g scam. Scam they call it because the exchequer lost thousands of crores in revenue, something the government could have earned otherwise. However the question is “Where did all the money go”?

The money probably remained in the cash reserves of the telecom company or as it was with many telecom companies they did not have to borrow it from banks at high interest. Now as this resulted into reduction in the license cost, the sole benefiter remained the end consumer as the 2g services that he was enjoying came at a reduced price. The point to be analysed is “The loss of revenue to the government = Economic benefit to the consumer”.

This brings us to the fundamental question of “How much must the government intervene in the private sector by its means of taxes and regulations”. In my opinion NIL! The thick presence of regulations simply kills the competition as it results in corruption and creation of monopolistic environment. Take our telecom sector as an example – Pre liberalization India had only government run MTNL/BSNL as the providers of telecom service. This resulted into absolute monopoly of these entities, the one people benefiting out of such an arrangement were the company officials who often use to take bribe for a quick connection. The end users always ended up on the losing side as they had to suffer delayed/poor service and more importantly an outdated product.

Liberalization of the telecom sector brought lot of benefits to the consumer, the most important being “Competition”. This dethroned the government as being the most influential stake holder and the focus was on consumers. However in 1997 TRAI was formed by an act passed by the parliament.  On its Website TRAI states: “One of the main objectives of TRAI is to provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition.” It further goes to say “The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority.”  By doing this the government has placed immense power in its hands.

Should the government be regulating the tariffs in a sector with private players? Or should it be left to the basic principal of Demand and Supply with competition to influence the tariffs. Who decides a standard quality of a service? If the government forces the service providers to maintain a high quality of service as it says in its motto and it does this by ignoring the cost associated with it. Wouldn’t it increase the operational cost just to maintain a high standard which the consumer might not actually desire as he is enjoying a reasonable quality standard by paying less? This very important as India is not Europe.

The government has no right intervening in a private sector; this is because government intervention results in government accumulating unnecessary power. This results in associated ministers getting powerful authorities which motivate private sector players to bribe them so as to create policies favoring them. This again results into a wide scale corruption and formation of monopolies, something which was witnessed during Mr. Pramod Mahajan era (Then Minister of Telecom). Why else is that despite India being the second largest telecom market in the world, still has the least number of international service providers?