“It has to be taken as a marathon”

Kris Gopalakrishnan, Executive co-Chairman, Infosys, led the company through the recession and recently passed on the CEO baton to SD Shibulal. He talks to Virat Bahri on the Infosys leadership and succession model and what will be expected from the future leaders of the company

B&E: In a few years, Infosys will be led by its first non-founder CEO. How do you view the transition and how has the company prepared itself? How do you think the non-founder will approach the business?
Kris Gopalakrishnan (KG): We have been preparing for this since 30 years. We knew even then that definitely the company is going to be led by non-founders one day. So we have been preparing for this. The company is constantly changing. No company is the same. The environment is changing, business & customers are changing; so we are constantly changing. Unless you change, you will not be relevant. We are changing as required by the market. There will be changes in approach (by the non-founder CEO) but they will be primarily led by the market changes and the environment where we are operating. As long as we select the right people and manage the transition well, the company will continue to be run as efficiently as is necessary in the environment in which we are operating.

B&E: From the outside perspective, it looks as if Infosys is led more by a strong set of processes than by people. What is your take on which has worked more for you?
KD: The thing is people, process and technology are the three pillars, which we need to look at. I would say that all these matter. Some companies would depend on just one aspect; we look at all. In 1999, we did a comprehensive internal assessment. It looked at various aspects of the business and also at the results. We realised that we have informal processes for leadership,but no formal processes. We didn’t have a model, which is the technology aspect. We created the Infosys Leadership Model, we created a process to implement that model and the result is the Infosys Leadership Institute and our leadership development programme. We are trying to ensure that we look at it more holistically and do all the things that are necessary.

B&E: What are the traits that you would look for in the new responsible leader?
KG: The basic model is the same. We look for a person with high integrity, entrepreneurial spirit, driven, self motivated, one who understands technology and who has a successful track record of working in the Infosys context; as ultimately, the whole thing has to be delivered in the Infosys context. Some elements can be more or less from person to person. The person would also have weaknesses; you can augment the weaknesses with processes and technologies and people who support the leader. Ideally, that’s how the entire process should work.

B&E: CEOs of Infosys in the past, including you, have personified the company in many ways. To what extent do you think it will be necessary for the new CEO?
KG: The CEO is the first person and so in that sense, you are the brand personality for the company. To that extent yes, the correlation will be there. But to me, if you choose the right person, that is a positive rather than a negative. A smart person will understand that you have to also give face to other people. If there are other good people in the organisation, you have to allow them to also be the voice of the company. They must get the visibility required. I have tried very hard myself to ensure that I give visibility to others and that the company is not identified with one person.

B&E: The millenial workforce of today is identified with unique personality traits like the need for quick gratification. What is your view on how leaders must adapt to this workforce?
KG: You need to respect the individual, give them the space & appreciate the work they are doing. Lots of people do not work today just for the money; they work because it is the right thing to do. They can associate themselves/identify themselves with the process and things like that. It is slightly different from the command & control structure, which has to be adjusted for the new generation. If they don’t feel that their voice is heard, they are appreciated or given space to operate, they will not identify themselves with the company and you will not get 100% output from them. As far as expectations are concerned, today the world is generally becoming faster and faster, and the expectations are there as a result of the environment.

B&E: How do large organisations with bureaucratic processes and set ups manage the innovation process better? In the global technology environment of today, a number of large companies seem to be getting most of their innovations from M&As. How is it in your case?
KG: You do require a set of disciplined processes in a large company, else there will be chaos. To me, innovation is a separate process. If done right, it can also succeed in a large organization. There are separate advantages in a large organization. You can scale up faster, funding is easier, et al. You have to understand that the process has to be different; that is how it has to be managed. We expect innovation from both within and outside. We have to preferably encourage innovation from within, as we have 6000 projects with lots of clients, so there is a huge opportunity for innovation.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

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Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
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Another river of sorrow

Dams across Mekong make it a potential flash point for hostilities

Disputes for land are murky enough, and disputes over water can get murkier. Mekong, south-east Asia’s largest river, which flows through or along the borders of China, Laos, Cambodia, Vietnam and Thailand, bears the burden of economic conflicts among the countries on its banks. Even the downstream impact of Chinese dams is very debatable since China developed its first hydropower dam ‘without consulting its downstream neighbours’ in 1993. During the last seven months, Mekong has become a focal point of discussion globally over the resolution of the $3.5 billion Xayaburi dam, one of the 11 dams planned on the lower Mekong mainstream, the section of the river below China.

Chinese dams have severely affected downstream countries by controlling fluctuations in water volume. Even the Mekong River Commission has accused China for the same. Environmentalists and non-government organisations are worried that it could destroy livelihoods, fish species and farmland & potentially spark a food crisis.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
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Politics - KANIMOZHI: NO BAIL

The refusal of bail to DMK leader Kanimozhi and others accused in the 2G scam by a CBI court has evoked reactions from legal eagles on whether the order violates the judicial norm of according bail to accused, once investigations are complete and trial is set to begin.

The reactions to the judgement have been mixed. President of the Janata Party Subramanian Swamy, who is also pursuing a private complaint in the 2G scam, feels the court’s decision to deny bail to the accused has set an example for future cases. Speaking exclusively to B&E, Swamy said, “The judgement will help reinforce the belief that the rule of law prevails in India even after all other agencies go soft.” A section of legal luminaries, however, feel differently. There have been some sharp reactions to the judgement, which is said to smack of judicial activism. Senior advocate Ram Jethmalani termed the judgement as ‘a destruction of the whole criminal jurisprudence’. “These judges don’t want to grant bail themselves. Possibly, they want everything to be done by the Supreme Court,” he said. Critics of the judgement maintain that there were no grounds for keeping the accused in jail as even the investigating agency CBI had not opposed the bail. Swamy, however, offers a different take. “It is unfortunate that the CBI succumbed to petty political pressures and slowly put the lid on the entire case. The judiciary has set an example with this judgement that justice can be upheld even in circumstances when all other agencies of governance fail to deliver.” According to him, given the pro-Centre functioning of the central agency, the very fact that the CBI had ‘gone soft’ after preparing a strong case suggested that the Congress was not keen in keeping the accused behind bars anymore.

According to Supreme Court advocate Kamini Jaiswal, the court judgement denying bail to Kanimozhi and the others accused in the 2G case is unfortunate. “The rule is bail and not jail. Once the charge sheet has been filed, and given that the entire case is based on documentary evidence, what is the point keeping them in jail?” Jaiswal disagrees with the court’s contention that as Kanimozhi and others accused are influential people, granting them bail might result in manipulation of witnesses and tampering of evidence. “If they are influential people, they can very well manipulate things from inside the prison,” she contends. Many others in the legal fraternity too feel that withholding bail at this stage when all documentary evidence have already been placed before the court is being unduly harsh on the defendants. These experts say that going by the law of jurispudence, which has been cited while deciding on many bail pleas, the usually expected move is bail. In this case, however, the judiciary seems to have tried to score one over the government. “It is in continuation of a trend that the SC has set for taking on the government on many issues,” says a senior lawyer on the condition of anonymity, adding that the tone of the CBI court clearly revealed that the SC was monitoring the case and the rejection of the bail plea by the trial court was in line with the earlier apex court’s decision not to grant bail to Kanimozhi and four others accused.

The judiciary has taken a particularly tough stand in this case and opinions differ on the reasons behind such a stance. However, taking a cue from the tone and tenor of the court while dealing with serious economic offences, any positive results seem unlikely for Kanimozhi, even though her defence counsel has now moved a petition in the Delhi High Court for seeking bail. The enormity of the scam is huge, and this has formed one of the major grounds for the trial court’s rejection of Kanimozhi’s bail plea so far. The higher courts may overturn Judge Saini’s order, but no one can say he did not do his best on behalf of those whose evidence will be crucial to nail the accused in the greatest financial scam in Indian history

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Withdrawing AFSPA: Political demagoguery or public opinion?

Chief Minister Omar Abdullah’s call for revocation of the special powers vested in the Army in J&K has its pros and cons, but any decision to this effect must come through only after a careful study of the ground reality

When Omar Abdullah took oath as the eleventh chief minister of Jammu & Kashmir on January 5, 2009, the people of the state looked up to him as someone who would steer the state away from its years of insurgency, strife and political brinkmanship. But after being in office for almost three years now, Omar seems to have developed a penchant for landing himself into heavy political weather. His latest salvo, calling for a partial revocation of the Armed Forces (Special Powers) Act in J&K, seems to have caught everyone off guard besides causing a flutter among the political dovecotes. Thanks to some hectic lobbying by Omar to have AFSPA repealed from some areas of the state, political polarity over the issue has ratcheted up both inside J&K and elsewhere in the country.

Omar’s proposal, it is said, has found favour from the Home Minister P. Chidambaram, though New Delhi is loath to taking any decision on the issue in haste. But what’s perplexing is why Omar chose to stake his credibility on such a sensitive issue? In the days since he has been beating the AFSPA drum, Omar has invited a barrage of acerbic comments and now finds himself painted into a corner over an issue that excites the most extremes of political reactions. Instead of finding open sympathisers to his cause, there are more carping critics who have taken umbrage at the manner in which he has whipped up his latest political stunt. Eyebrows have been raised over Omar’s choice in barrelling ahead with his demands straight to the Home Minister in Delhi before even taking his own security agencies and the Army into confidence.

Subsequent to his meeting with Chidambaram, Omar has also met Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee, Congress President Sonia Gandhi, Defence Minister A.K. Antony and Army Chief V.K. Singh on the AFSPA issue. Though the Army has been tight-lipped over the meeting, sources tell B&E that the two discussed the J&K government’s demand for withdrawal of the special law from parts of the border state. The meeting is said to have been inconclusive.

Critics of J&K’s chief minister say that his raking up the AFSPA issue is a well-thought out diversionary tactic intended to deflect blame from his recent political troubles. Omar has been in the news for all the wrong reasons recently, the latest being the custodial death of a political worker from his party who was picked up by the police from his official residence. Omar, though, claims that his demand for the repeal of AFSPA reflects popular public opinion. Could he be right? After all, even the three-member panel of interlocutors appointed by the central government to engage political actors in Jammu and Kashmir has reportedly called for the roll back of laws giving the armed forces special powers. And human rights activists have all along described AFSPA, which has existed in the troubled state since July 1990, as ‘a draconian law’ that has resulted in abuse and violation of human rights by the security forces.

According to the provisions of AFSPA, army personnel on duty in J&K or in the Northeast can make arrests without a warrant, or search the premises of a person without following the established procedure. Prosecution can be launched against erring army personnel but only after getting the central government’s sanction, which is not easy. Under this Act, all security forces are given unrestricted and unaccounted power to carry out their operations, once an area is declared ‘disturbed’. Even a non-commissioned officer has the right to shoot to kill based on mere suspicion that it is necessary to do so in order to “maintain public order”.

The Army is opposed to any change in the law on the grounds that it needs the protection of special laws when its men are deployed in anti-terrorist or anti-insurgency operations. In its opinion, it is not easy to achieve success in the fight against an invisible enemy in a difficult terrain without the protection of special laws. According to Sena Medal awardee and senior defence analyst Lt. Gen. (retd.) Satbir Singh, “Terrorism in the J&K region needs to be dealt with forcefully.” The Army, on its part, maintains that it always has the highest regard for human life because it itself loses men everyday. “We (the Army) have always applied the principle of minimum force but sometimes, extraordinary situations call for extraordinary measures,” says Singh.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School
IndiaManagement Guru Arindam Chaudhuri
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Are we still in the Dark Ages?

FDI in retail has been stalled by allies and opposition parties alike. The critical view on this issue betrays a very myopic vision on India’s future

While we keep talking about a resurgent India that looks at new possibilities rather than one that intends to stick to a comforting yet illogical comfort zone, certain developments from time to time serve as grim reminders that this need not necessarily be true. By the time of this going to press, a lot had been spoken, written, declared and retracted about the proposed opening up of the multi-brand retail (51% of it, that is) in India for foreign players. The final word is that it is on the backburner now and Finance Minister Pranab Mukherjee has declared that the decision will only be taken after a consensus is reached among all stakeholders. Considering how consensus is typically reached in India, hope rests on a sticky wicket. Expectedly, India Inc. has described it as a setback in terms of both economic rationale and symbolism. On the day the decision was announced, the markets saw a precipitous decline in stock prices of listed retailers Pantaloon (by 12.86%) Koutons (by 6.49%) and Store One (by 2.49%). The reform, which was meant to kick-start approvals for a long queue of pending reforms and was termed as the initiation of a mini-liberalization has been gutted at the onset.

Currently, organised retail is expected to account for 6-7% of total retail in the country with a turnover of around $28 billion. It is expected to increase its share to around 20% by 2020, when the industry as a whole will reach a size of $1.25 trillion (BCG report), and FDI could in fact make even these predictions look pessimistic. Consider the case of the telecom sector in India. The increase in FDI beyond the 49% cap to 74% acted as a welcome catalyst for the industry. The sector has since been one of the largest recipients of FDI in India (contributing around 8% of the total FDI to the country) with $7.55 billion invested in FY 2010-11 and $12.34 billion received in FY 2009-10 as per data from Department of Industrial Policy & Promotion. It has been critical for the execution of the strategic plans of domestic players. The National Telecom Policy of 1999 projected a subscriber base of 500 million in India by 2010, while the actual number easily crossed 700 million in that year. Amit Bagaria, Founder Chairman & CEO, ASIPAC, asserts, “Telecom in India developed much faster after FDI was allowed and this helped bring down telephone call charges by 99% in 16 years.” FDI in retail, in turn, means a welcome overhaul of the supply chain in the country. Supply chain costs in India are 12-13% of GDP compared to around 8% in developed countries. A CII report in 2010 projects that supply chain inefficiencies in India cost the exchequer around $65 billion every year. With a $100 million minimum investment benchmark proposed by the government and at least 50% mandated for back end operations, a massive overhaul can be visualised. The setting up of cold storage in the nation shall help reduce the enormous 30% wastage of farm products. It may not be a mere coincidence that the call for FDI in retail saw some initial support from the Badal government of Punjab, where Wal-Mart set up shop with Bharti in a cash & carry format. Later on, of course, the Badal government had to succumb to the whims and fancies of its political ally BJP.

A major stumbling block in Indian back end operations is the large number of middlemen. Between the farmer and the consumer, the product goes through upto four intermediaries including the aggregator, the market trader, the wholesaler and the sub-wholesaler. In western countries, there is normally just one point of contact. These unnecessary levels can significantly increase the price of the commodity for the consumer by as much as 100% in some cases. According to a study by Boston Consulting Group, while a farmer in India gets at most 35% of the market price for his produce, the figure can rise as high as 65-70% for farmers in developed nations like Australia.

The prime reason cited for a rollback of the reform by the opposers is the possible closure of mom & pop stores and the huge unemployment it would result into. According to Tamil Nadu CM Jayalalitha, the move would lead to massive job losses among the 40 million employed in the trading sector in India. Factually though, as industry bodies argue, out of the 40 million employed in the trading industry in India, 35 million are employed in smaller cities where population is less than a million (the government has initially restricted the FDI leeway to 53 cities with 10 million plus population). So they would be largely unaffected by foreign multi-brand retail establishments. Furthermore, large retail setups require high quality labour and would need to make massive investments in hiring, training and development. In addition, the catch that 30% of the inventory has to be sourced from local SMEs also provides a wonderful opportunity for Indian companies to scale up and become more powerful brands, the way it’s been for counterparts in countries like China & South Korea. Consider, for instance, how Wal-mart stores in China sources over 95% of their merchandise locally.

Anand Sharma, Union minister of Commerce, claims that over 10 million jobs shall be created within three years post the implementation of the policy. According to a projection by ASIPAC, 4.35 million jobs will directly be generated from organised retail in another 4 years, assuming that this segment will occupy 783.63 million sq. ft. of retail space by that time. The report argues that organised retail will only affect around 19,850 businessman rather than the many millions that are talked about.

Leave alone the ministry and industry honchos, even some local retail associations feel that the reform is a step in the right direction. According to K. S. Khamba, President, Hauz Khas Market Association, which represents a number of mom & pop stores, the entry of foreign retailers shall instigate improvement in the retail industry with a shift towards service oriented retailing. The mom & pop stores, who thrive on strong personal relationships with customers and services like credit and home delivery have the ability to compete with organised retailers. Also, while it has been taken for granted that the cost of products sold by organised retailers will be lesser, it may not necessarily be true. A survey by Assocham claims that kirana stores provide price undercutting to the extent of 25% and also offer options for avoidance of payment of duties such as VAT & other local levies on articles sold by them.

Even the governments, at both the central and state level, are set to gain in the long run since FDI would bring into the tax net a huge section of daily sales which go unchecked at the moment. According to an ASIPAC study, a total of Rs.1.58 trillion shall be generated as additional tax if FDI is implemented by means of GST collections at various points that was previously unaccounted, corporate tax generated by these firms, and the personal income tax garnered due to the creation of new taxable labour.

With so many multiple benefits for the Indian economy, the entire hullabaloo about the perils of FDI is illogical. And so is the logic that Indian farmers and businesses are unprepared. We were not prepared in 1991 for liberalisation either. We always seem to put our house in order when a much debated change happens and presents real & present challenges along with opportunities. Stalling parliament and preventing FDI liberalisation in retail tantamount to preventing one very critical transformation. Only a very short sighted & ignorant vision on India’s future can be behind the backlash that the retail liberalisation agenda faces currently.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

“They can change the whole mining policy”

Prashant Bhushan, Lawyer & Activist

The Union Budget is an extremely important process for the country, as it not only decides who will be paying taxes and what kind of taxes; it also decides where this money from the government will be spent and the manner in which it will be spent. The budget sets the tone to the economic policies the government wants to follow.

Unfortunately, many things that should have been done through the budget are being done secretly in India. Take the example of the surreptitious tax holiday given to foreign companies by allowing them to deploy the Mauritus route. Strictly speaking, if the government wanted to exempt foreign companies from taxes, it should have been done by way of budget by providing for it in the Finance Act. The government, sadly, has chosen to do so surreptitiously by passing a CBDT circular. Of course, the government does not have the political consensus that is required to pass something of this kind, which is why they have chosen to do it secretly. This secrecy has also been observed to be encouraging many opaque financial transactions in the country in the sense that many countries come into India through the Mauritius route and there is a lot of black money generated through the Mauritius route. Unfortunately, the government is just not bothered; and in fact, seem to be encouraging it. Even in the case of Vodafone, where although the judgment was wrong and bad, it can be easily corrected by means of a legislation, which can be passed along with the budget. The Income Tax Act can be amended with retrospective effect to plug such a leak. Lack of political will on behalf of the government to ensure compliance of laws is one problem. The second problem is that enough money is not being allocated for critical sectors of the economy such as healthcare, judiciary & even education. Even the money allocated in programmes like MGNREGA is largely misappropriated due to lack of accountability and more importantly, lack of institutions to enforce accountability.

Unfortunately, for the past twenty years, most budgets that we have seen are geared towards what the Prime Minister calls GDP growth, even if it is achieved by breaking the backs of the poorest people in this country such as tribals, taking away their lands and livelihood and giving it to the richest corporations in the country essentially for plundering our natural resources. These budgets have also been totally unmindful of the environmental consequences of such growth. Growth for the sake of increasing profits of corporations, particularly foreign corporations, has been the philosophy.

The government can’t be talking policies like giving away your mineral resources to corporations for a pittance, where you get a royalty of 1%, you don’t charge anything by way of lease money and allow resources worth lakhs of crores to be extracted and exported out of the country on the basis of first come first serve, which is the policy being followed in giving out mining leases. In the same way, we have seen a totally dishonest, discriminatory and arbitrary policy by the government in the 2G case. There is much more money involved. There you have several lakh crores worth of natural resources of the country being looted, which should ideally be public resources and public assets. This policy has been unmindful of equity among the poorest people who live on that land and have been displaced, environmental consequences and also inter-generational equity. It is sad to see this government behaving unabashedly as an agent of these multinational corporations.

The budget itself cannot fix everything but it can fix some things plaguing this country in the current scenario. They can change the whole mining policy as there is huge revenue involved. Royalty could be 50% or even 75% of the market value of the minerals and you can have a policy of auctioning the mining leases, which is what the Supreme Court has also said. This auction of mineral resources could generate enormous amounts of money just as the 3G auction did.

The government should ideally have its task cut out for the budget if it wants to put an end to unbridled corruption and the huge financial scams breaking the backbone of this country. First, it must plug the Mauritius route. Then it should put an end to the manner in which mining leases are given out. There should be much lesser mining in India. In fact, mining should not be in the private domain at all. Also, the government should scrap the FCFS policy when it comes to allocation of natural resources. This would also ensure huge revenues, which could be put to good use for the public.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School
IndiaManagement Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
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Painful but cathartic verdict

By terminating all 122 licences issued by former telecom Minister A. Raja, the Supreme Court has shown its utter disgust and contempt for policies that smack of bias and are rigged to serve partisan interests. Will the government now come up with a transparent policy for allocating licences?

Much muck and dust has been flying around ever since the 2G scandal prised open yet another egregious instance of the unholy nexus between our crooked politicans, complicit bureaucrats and compromised businessmen. The landmark Supreme Court judgement early this month, cancelling all 122 2G licences issued by former telecom minister A Raja, brings to an end the kerfuffle that had been reverberating in the nation’s corridors of power and business. The SC verdict marks the opening of a new chapter in an otherwise so far sordid saga that has dogged India’s telecom sector in recent years. Immediately, following the verdict, telecom minister Kapil Sibal announced at a hurriedly called press conference that his government welcomed the SC ruling, which would help “remove the uncertainties clouding the telecom sector.”

Meanwhile, in the aftermath of the apex court ruling, several telecom operations seem to be in a state of funk. Many of them snapped up licences thinking they were buying into India’s telecom success story. But the SC ruling, some people say, seems to have thrown out the baby with the bath water. Copping the blame on the telecom players for obtaining a licence given out by the government on the basis of a policy that the Supreme Court has now repudiated seems a tad rich. Unfortunately, in light of the cancellation of telecom licences, these operators now look like having become dupes of the con played out by Raja and his underlings. The court’s ruling also comes as a stinging excoriation of the UPA government which, despite being alerted by various quarters to the flimflam orchestrated and pulled off by Raja and his minions, chose to string along with the first-come-first-serve policy for granting 2G licences.

Some players are certain to bear the brunt of the SC judgement more than the others. Already, Bahrain Telecommunications Co (Batelco) has announced that it is pulling out of its joint venture with STel and exiting India. The C. Sivasankaran-owned STel was among the beneficiaries of Raja’s 2G spectrum allocation. United Arab Emirates operator Etisalat, Norway’s Telenor and Russian company Sistema are the other foreign firms affected most as they had bought shares in the Indian companies whose licences have been scrapped. The court has given these companies four months’ time to shut shop. With the cancellation of all its 22 licences, Uninor (Telenor’s JV with Unitech) is the worst affected by the judgement. Though the company has one of the lowest average revenue per user of Rs 98, Uninor has the highest number of subscribers (36 million) amongst the greenfield operators. It has a workforce of around 17,500 and is operational in 13 circles. Uninor has also made substantial investments of around Rs.140 billion in the market.

Not everybody stands to lose though. Older incumbents such as Airtel, Vodafone and Idea stand to gain a lot since they are the ones who have been in operation well before 2008 when Raja gave out the new 2G licences. Idea has not done too well in the new circles it had won and hence its loss of nine circles does not amount to much. These players will most likely bid for maximum circles when fresh auctions are held so as to expand their reach further. “The court has said the government must now get the market value of these licences,” said a visibly elated Subramanyam Swamy, who was one of the parties that challenged the 2G licence allocations in the court.

While the angst of players adversely affected by the judgement is understandable, the SC has, in one deft stroke, dispelled the fog and murkiness surrounding Raja’s 2G licence allocations. The court’s verdict has ensured that the law of the land prevails. It has sent out a strong message to both the industry and government that crony capitalism will not be tolerated and that corrupt business deals facilitated by a collusive government will be subjected to judicial scrutiny. Says Member of Parliament Rajeev Chandrashekhar, “This is the first time that there has been such a detailed judicial scrutiny of the licence issuing process. This judgment signals that the sector is finally open to only those investors and stakeholders who wish to invest, build and succeed by following the laid down rules and laws.” He adds that the judgement clarifies many policy confusions and also lays down the mammoth task of cleaning up and reorganising the sector over the next year or so. “This scrutiny and the judgement establishes the unambiguous basis for licence grants through auctions or market-based mechanism by the government today and in the future.”

In order to prepare the ground for a fresh round of 2G spectrum auction, the Telecom Regulatory Authority of India (TRAI) has come out with a pre-consultation paper. The regulator has also sought to allay fears of existing subscribers in circles where telecom licences of operators have been cancelled. According to TRAI, subscribers need not fear about their connections as they can port to other service providers in their respective circles. While the modalities for holding the auction are being worked out, the government expects the auction to fetch a revenue of about Rs 750 billion. However, following the cancellation of licences there is likely to be an overabundance of spectrum in the Indian market, which will ensure that prices remain low. Besides, incumbent operators have already paid through their noses for 3G and Broadband Wireless Access (BWA). These investments will take a long time to turn profitable. In such a scenario, it seems doubtful whether these service providers will warm up to participating in another round of auction. Moreover, the incumbents (whose licences have not been cancelled) have enough 3G spectrum which can be used to accommodate new subscribers. Says Rajan Mathews, Director General of the Cellular Operators Association of India (COAI), “I don’t think that kind of money is available with domestic players. That is why the government itself indicated that it will raise the FDI limit to 74%.” Just to ensure that his reasoning comes across more convincing, Mathews draws your attention to 12th Five Year Plan proposals for the telecom sector. “The preliminary numbers put out by the Planning Commission suggest Rs 6,500 billion as the outlay for rolling out various initiatives by government. They themselves admit that 80% of that would have to come from international sources.”

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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