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Friday, July 8, 2016

Telecom scam: Congress’ Rs 45,000-crore CAG bomb is a GST spoiler

The Narendra Modi government’s involvement in the ‘Rs 45,000-crore telecom scam’ — the charge raised by the Congress party on Friday — is prima facie, far from a scam.
And looking at the timing of the levelling of this allegation, it appears more like purely a political exercise intended at preparing ground for taking on the BJP government in the Monsoon Session of Parliament (just 10 days away). The report of the Comptroller and Auditor General (CAG) in question, pertains to the case of six telecom companies allegedly under-reporting their revenue by Rs 46,000 crore during the period of FY2007 to FY2010 that ultimately resulted in a loss of Rs 12,000 crore for the state exchequer (Rs 5,000 crore of License Fee and Spectrum Usage Charge and Rs 7,000 crore of interest).
Now, take a closer look at the facts of the case. According to a PTI report, the actual financial impact due to understatement of AGR (aggregate gross revenues) stood at Rs 3,728.54 crore for Reliance Communications, Rs 3,215.39 crore for Tata Teleservices, Rs 2,651.89 crore for Airtel, Rs 1,665.39 crore for Vodafone, Rs 964.89 crore for Idea and Rs 262.83 crore for Aircel, the CAG said. The CAG report was tabled in February 2016. Going by the statement of the Department of Telecom, it received the key documents scrutinised by the CAG in mid-June 2016.
“These are being vigorously examined and the process of issue of demands for the four financial years for six operators in 22 license service areas in consonance with license agreement is currently ongoing," the statement added. The DoT has said the demands raised from this exercise will be recovered with due interest and penalty as applicable under license agreements. "There is therefore no loss of revenue to government," the statement said. Further, the government has said it is determined to recover every rupee of underpaid amount with interest and penalty from every defaulting company in the minimum possible time.
It was only fair from the Congress part to give the benefit of ‘time’ to the government considering that it’s been barely a month since the process of the reported loss-recovery has started. In fact, this shows the strategy-drought in the Congress camp for the Monsoon Session to take on the government. The party could have done better.
GST is the actual target
If one looks at the previous three washed out Parliament sessions (except the last one where the bankruptcy code was pushed through), this is probably the first session in which there aren’t any political controversies awaiting the government with the potential to play spoiler. Even more critically, this time there is a better possibility of the Goods and Services Tax (GST) being passed with the BJP improving its numbers in the Rajya Sabha and the regional parties seemingly favouring the proposal.
The Congress is under tremendous political and public pressure to give its consent to the Bill, which is critical for the larger interests of the economy. There is widespread resentment among international investors with India’s poor progress on the big reforms front such as land and tax reforms. Of the two, GST is the big ticket one since land acquisition has been left for states to decide on. Even there, the investor will not care much if land is under the state or Centre. If land isn’t available, investors will not commit to India for industries. The same goes for the country’s convulated tax regime. There are several layers and formats of taxes that are a perfect turn-off for anybody who buys into Modi’s promise of ‘ease of doing business’ and comes to India. Solving it is in India’s interest and should be treated above political considerations.
The Congress is raking up the telecom scam a few days after finance minister Arun Jaitley is reportedly planning to talk to the Congress for consensus. Modi too realises the importance of the crucial Bill in this session since it will take at least two more years for the final rollout even it it is passed now. All states have to pass their own GST law and new systems will have to put in place to facilitate the rollout. Hence, there is also ‘time value’ attached to the Bill, which is a constitutional amendment and needs twp-thirds of House support.
Already, there is widespread disappointment among investors and economy watchers with regard to the Modi government’s ability to pull off large-ticket reforms. The latest such comment has come from Morgan Stanley Investment’s Ruchir Sharma, who said he didn’t have any great expectations from the Modi government with respect to big reforms since the government is already past its prime. The Congress camp too realises that it cannot hold the fort for long in the GST battle. Of its three contentious demands, only one stands unresolved now — capping the GST rate in the Bill — where it doesn’t have much support from other parties. Also, most state governments have extended their support to the Bill.
The interesting part is that the UPA, which has housed some of the biggest scams (2G/coal) in the country during its time, will have to share responsibility if indeed the telecom companies, which include Vodafone, Bharti Airtel and Reliance Communications, have understated their revenues since this happened during their time. When the CAG report first surfaced, telecom industry bodies — COAI and AUSPI — in a joint statement had said the "matters relating to interpretation of Gross Revenue/Adjusted Gross Revenue of telecom companies for the purpose of calculation of license fees are under litigation in various judicial forums including the TDSAT, high courts and the Supreme Court.”
The short point is this: The Congress party’s Rs 45,000-crore CAG bomb is more like a wet cracker; call it a GST spoiler.

Firstpost India News

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