Nuanced opinion on allocating scarce resources

The Supreme Court has answered only the first of the five questions posed before it — whether auction is the only permissible Constitutional mode of alienation of natural resources?

It has declined to answer the remaining, lest it is misunderstood as interfering with and commenting upon the 2G verdict in which the Apex Court had cancelled as many as 122 telecom licenses.

In the event, the 2G verdict stays; the licences stand cancelled, with Raja and others’ culpability to be established in the ongoing criminal trial.

Constitutional mandate

Indeed, the Supreme Court could not have pronounced a verdict on the 2G case inasmuch as this judgment was on Presidential reference and not on a review petition.

In a well-researched and scholarly judgement, the Apex Court has cited Article 14 of the Constitution that enshrines the right to equality and Article 39(b) of the Constitution, exhorting the state to strive for use of public resources for larger good of the people.

It also cites the relevant literature and jurisprudence to say that auction of public resources is not the Constitutional mandate. For, larger public good can be achieved in diverse ways according as what the public purpose on hand is.

Revenue maximisation could be implicit in some of the cases of alienation of public goods, and it would be expected of the government to resort to auctions. But this need not be the objective in every case.

To wit, an oil explorer will not evince interest in exploration activity, admittedly demanding and expensive, unless he is guaranteed the exploitation rights as well on the oil he has successfully explored.

It would, therefore, be unfair to fault the government for bartering away exploitation rights, given the fact that the exploration contract and exploitation contract would necessarily have to be bundled together.

The Court has read the fundamental right to equality and the Directive Principles exhorting the state to alienate its resources only for larger public good in a harmonious manner, and come to the conclusion that nowhere in these two articles is there even a remote suggestion that auction is the only mode of alienation that is Constitutionally permitted.

Political capital

If you thought that by saying that auction is not the only mode, the Apex Court was implicitly casting its imprimatur on coal allocation policy, of giving coal gratis to steel and power producers, among others, perish the thought. If the verdict gives the policymakers a free hand, it also contains a stern warning — any arbitrariness in alienation of national resources is liable to be struck down by courts.

To be sure, the Court was not commenting upon the coal scam as indeed it was not on the infamous 2G scam, but the grim message is no policy would pass muster if it is arbitrary — that is, the villain of equality.

First-come-first served (FCFS) evidently belongs to this genre. The 2G verdict of the Apex Court elucidates cogently why FCFS is innately and potentially arbitrary, though the same court in the Presidential reference case has opined that no policy can be proscribed by Courts on the ground that it could be potentially arbitrary.

The Apex Court has taken care to preface its answer to the Presidential reference with a disclaimer that its answer should not be construed even remotely has casting any comment on the 2G verdict. UPA II, therefore, cannot go to town and say that it has been vindicated.

Its contention that coal was given gratis, so power could be given cheap, does not wash any more than its earlier argument that spectrum were given cheap so telecom penetration on the back of cheap mobile rates would improve.

Had the power producers, for example, to whom coal was given gratis been enjoined to sell power at the agreed fixed price in consideration of having received coal gratis, this argument would have cut ice.

Follow any policy you please but it would be amenable to judicial scrutiny is the message emanating from the answer to the reference. A fine judgment, indeed.

(The author is a New Delhi-based chartered accountant.)

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