Public good vs auctions PDF Print E-mail
Friday, 28 September 2012 00:00
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SC says public good is critical for resource allocation

The Supreme Court opinion (not ruling!) on the Presidential Reference on whether auctions were the only way to allocate natural resources comes as a big relief to the government, as not giving the government any discretion—in allotting land to an educational institution, or for industrial purposes—takes away from the very essence of policy-making. After all, if governance has to be done on the basis of an unchangeable template for all times to come, why even have ministers and bureaucrats? And if, for instance, the government wants to encourage the setting up of universities, by way of example, surely giving away land free has to be part of this policy. So, the Supreme Court has done well to opine—the Presidential Reference is not a ruling and so has legal clout but is not enforceable by law—that “auction, an economic choice of disposal of natural resources, is not a constitutional mandate.”

The question then is whether the government is now free to give out licences/resources as it pleases? Has the 2G judgment been over-ruled and can the government now simply refuse to cancel the coal mine allocations that were the subject of the R1.86 lakh crore-loss CAG report? The answer is as unequivocal as expressed in the majority opinion—Justice Khehar has concurred fully with the majority judges but has added a few points of his own—when it says “if a policy or law if patently unfair to the extent that it falls foul of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down.” It goes further to add “when such a policy decision is not backed by a social or welfare purpose, and precious and scarce resources are alienated for commercial pursuits of profit … adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution.” In other words, to the extent the Presidential Reference opinion is binding—and it is not—the government will by and large have to allocate natural resources only through auctions. In the case of coal mines, for instance, the government cannot show that those who got the mines for free used them to provide cheaper electricity to consumers. Which is also why, after the CAG coalgate report came out, the government said that power producers who had got captive mines would have to pass on the benefit to consumers of electricity. Since this had no impact, the power ministry is in the process of coming out with new guidelines to ensure this is legally binding.

While the government had put 106 telecom licences—other than the 122 cancelled by the SC—at risk by asking the SC, in the Presidential Reference, whether these should be cancelled since they were also not auctioned, this wasn’t strictly correct. The 1994 licences, for instance, were given through a ‘beauty parade’ bidding process. Since it had been argued the Presidential Reference was nothing but a backdoor means to overturn the 2G judgment—to which the Attorney General had said the government was not questioning it—the SC “respectfully decline(d)” to deal with this. While that’s a relief to the telecom industry, it means the government will have to decide on its own on whether to cancel the dual-technology licences issued by A Raja.


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