ETHICS AND VALUES IN MANAGEMENT FINAL REPORT ON 2 G SCAM

SUBMITTED TO: PROF GOVINDA SHARMA

GROUP A 1 MANU GOVIND- 11030 MOHIT KUMAR GUPTA -11031 DANENDRA K MISHRA -11014 SIDDHARTHA SHANKAR MISHRA- 11050 SOURABH RAI- 11053 SOWMYA BORRA- 11054

ABSTRACT The 2G Scam, related to the allotment of the scarce telecommunication bandwidth by the Union Telecom Ministry (India) is viewed as a corruption story - the natural result of greed, misuse of power and irresponsive governance. As the case is still under the court of law, its difficult to reach to a final conclusion, so as to whom should be held the direct responsibility of the procedural failure. As a coin can have not only two, but multi dimensions depending upon the vision of the observer , this case also has multiple faces, looked from various different prospective ,and here we tried to look in to the case with an Ethical and Moral responsibilities of the people concerned, as our base line. The governance of the sate machinery has undergone a tremendous change post the liberalisation era, leading to the entry of global players in each sector, specially the financial and business sectors. The decision making process of government is not entirely dependent upon the government alone, but its affected by various other pressure creating groups like business houses, lobbyists, bureaucrats, media barons etc. Financial scams of such magnitude are a wakeup call for the entire world, not only our country. Poor governance has adversely affected the socio-culture economic and political environment within the country. This is a time for introspection and coming out with suitable strategies, so that in future such kinds of scams and financial irregularities does not happen. And the issue relating to business ethics and corporate governance needed to be critically examined keeping ethics and values as the core of corporate governance. We tried to analyse the case as objectively as possible keeping aside our subjectivity or biasedness. The report follows a chronological sequence of descriptions and issues. The detailed references are given in the last page.

FINAL REPORT The system of governance in India is at a cross road. An ancient proverb says a fish rots from the head down the process of deterioration starts from top to bottom. The country which was once known as the land of knowledge, service, sacrifice and sovereign governance has now become the place of scams and scandals Indias precious wealth has always been looted, sometimes by war lords from Middle East, sometimes by Britishers and sometimes by its own people in power or collaborating with those who are in power. Currently 4 per cent of the countrys population is controlling 80 per cent of the resources and are manipulating all sorts of rules and regulations in their favour for the gratification of their personal desires. According to United Nations economic report studies (2008), 68 per cent of Indias aggregate capital loss occurred after Indias economic reforms in 1991. Globally India continues to be ranked poorly securing 95th position out of 182 nations in Transparency Internationals corruption perception index- 2011. (Source: Transparency international India Worldwide Corruption Perceptions ranking of countries Published by Transparency International) 2G spectrum allocation scam which occurred in the Ministry of communication and Information Technology is one of the unique types of example of mal-governance in independent India, in which all rules, regulations, policies and procedures and recommendations of various ministries and commissions were cleverly flouted to help certain ineligible corporate houses. Spectrum is the band width of electromagnetic signals, a lobe of natural channels used by cell phones. Spectrum is national property and resource of present and future generation and Government is only custodian and trustee of these resources. No one has a right to sell or auction the legendry wealth of nation as personal property like this. It a matter of surprise that even the advice of Prime minister was also avoided by the concerned minister. Among the total 575 companies applied for the licence only 122 companies were issued the letter of intent on January, 10, 2008. 85, out of 122, licence were issued to ineligible applicants. TRAI recommended the cancellation of licence of 69companies who still do not fulfil the conditions. The department of telecommunication informs all eligible applicants who applied for UASL (Unified Access of Services License) up to September, 25, 2007, through press information bureau that they will be issued letter of intent. Much drama followed at 2.45 P.M., the ministry issued another press release, asking all applicants to assemble at 3.30 P.M, to collect

the letters in response to their applications. As per CAG report as many as 13 applicants were ready with demand drafts drawn on dated prior to notification of the cut-off date and some had even managed to secure bank guarantee at such short notice. But instead, keeping all the regulations aside, the ministry granted licences to ineligible operators. (Source: Times of India, 17 November, 2010, PP-9, India Today, 29 November, 2010)

ETHICAL ISSUES THAT WERE RAISED Responsibility was not conserved: The former minister A. Raja sold the licenses at under-priced rates. The government awarded 122 telecom licenses under 2 G spectrums in January 2008 at 2001 rates. He didnt follow the instructions given by the TRAI, Financial Ministry and hence did not follow the proper auction mechanism for the allocation of spectrum. He allocated licenses to Unitech, and Swan Telecom which did not had any prior telecom experience. Eighty five out of the 122 licenses issued in 2008 were found to be issued to Companies which did not satisfied the basic eligibility conditions. He as a Telecom Minister had his responsibility to check the sales of licenses and allocations. He failed in doing that and the result was a loss of Rs176, 645 crores. He favoured some companies at the cost of the public exchequer and virtually gifted away important national asset. As the Finance Minister of the country, Chidambaram should have taken a keen observation on the policy of revenue generation followed by the Telecom Ministry but he did not show a responsible decisiveness of an elected Statesman. Fear of losing power: The Prime Minister of India wrote a letter to A. Raja on November 2, 2007, mentioning that as per TRAI instructions allocation of spectrum should be done based on proper Auctioning system. Finally on December 26, 2007, A. Raja sent a letter to the Prime Minister mentioning that he wants to allocate spectrum based on First Come First Serve (FCFS) at the rate of 2001 market price. Prime Minister objected in the first letter but later due to the fear of losing support from DMK, TamilNadu (As DMK is powerful in TamilNadu), he accepted the process. Prime Minister faced the dilemma between accepting the process (responsible

indirectly for the scam) and asking to follow TRAI instructions (loss of TamilNadu constituency). Personal greed: Raja was the mastermind of the whole scam and his personal greed made him do all the corrupt things without following TRAI instructions and Prime Ministers instructions. The two fundamentals of business (fair dealing and transparency) were completely kept aside to enjoy the false fruits. Due to the personal greed of bribe, he advanced the cutoff date of applications for issue of licenses by a week and invited no further bids. Lack of transparency: The fundamental of doing business is transparency, which was not followed. Few senior officials supported the moves of Raja, some due to their willingness and some by the force of the higher authority. Some people in the organization even dont know what was going on in the spectrum allocation. Many of the rules and policies of TRAI and DoT were violated in order to benefit the few. Many facts were suppressed, disclosed incomplete information and submitted fictitious documents for getting licenses and thereby access to Spectrum. Wrong use of power: Being a government officer A. Raja has to use the power for public benefit and to maximize profits for the government. Raja being the Telecom minister, tried to influence the senior officials of DOT by all means (unethical ways). Those who didnt get influenced (who were ethical) were either transferred or removed from their posts. Kanimozhi miss utilized the power of being the daughter of Chief Minister Karunanidhi. She was a key player in carrying out the 2G scam and she along with her mother shared 80% stake in Kalainagar TV. It had received easy loans indirectly from the owners of one of the beneficiaries of the alleged 2G scam Swan Telecom., She made contacts with the people who were involved in the scam and accepted bribes from them, which was illegal.

RELATED THEORY
Is bribery justified? Bribery is a universally shameful and illegal phenomenon; it creates more harm than the eyes can see. If the bribe is offered and accepted, the moral weakness of the bribed official is

transformed into corruption. This undermines the basis of trust in a society. When corruption is exposed social cohesion and solidarity further diminishes. This can only count towards negative utility. Utilitarianism By applying Utilitarian theory to 2G scam case we can understand that personal greed, fear of loss of power, lack of transparency and bribery creates more harm than the good. It causes Social Injustice and shows irresponsible behavior towards the society. By adopting Social Justice which is a Universal value and by being responsible towards the society to achieve Universalism which hopes for the Universal good, the ethical issues regarding bribery can be resolved. It builds trust and reduces corruption in the society. Distributive Justice Distributive justice means equitable distribution of opportunities, goods & services. In the 2G Scam distributive justice was not at all followed. Some companies dont know the advancement of cut-off dates. Ineligible companies were given the spectrum allocations. Companies which were giving bribes gained the justice which is not at all ethical.

ROLE OF VARIOUS STAKE HOLDERS: In the 2G scam case the question of moral responsibility were on the bureaucrats part, on the politicians part, who held a responsible position in the government and supposed to be the servant of the common man in the democracy, on the part of media because it is supposed as the fourth pillar in the democracy, on the side of regulatory bodies, and on the side of corporate. Let us describe one by one. If we apply the concept of moral reasoning, which states that the reasoning process by which human behaviours, institutions, or policies are judged to be in accordance with or in the violation of the moral standards and the moral standards are what is right and wrong? So considering this concept in the discussion we can say that moral standards for all the parties involved in 2G scam states that each parties should consider the countrys prosperity and try their level best to prevent the exchequer loss. But the facts states (CAG report) that the estimated loss in the 2G scam was 1.76 lac crores, due to the involvement of bureaucrats ,politicians and corporate. They didnt follow the expected behaviour and after that they mislead the country on this issue also. The question arises on the policy also, which followed by the government during the spectrum allocation in 2008. So we can say that the spectrum allocation was unjust because the process which they followed was incorrect.

Now the moral responsibilities of some initial accused:A. Raja- He was the telecom minister in 2008 when the spectrum was allotted on the basis of first come first serve basis. And spectrum is supposed as the scares resource in India, but at the place of making more profit from the allocation he played multiple tricks to ensure that the spectrum is allotted to its favourite companies. In the recent judgement on 2nd February 2012 supreme court of India states that A. Raja didnt played their role properly and allotted 122 licences within just very small time, and ordered to cancel all 122 licences and suggested for the fresh auction for all the licences. Prime minister (Manmohan Singh) - The prime minister of a democratic country like India is supposed as the protector for the whole country and his decision must consider by all. And this is his moral responsibility to protect the interest of the nation by using his own constitutional power from the various reports (as Swami wrote two letters to prime minister) but he didnt take any action to prevent loot. He was under pressure to save his governments tenure because the alliance with DMK was crucial. Finance minister (P. Chidambaram)- In any auction the money collected by DoT is deposited in the finance ministry , in such cases if any change in the policy happen, which reduced the revenue on this issue finance minister didnt take any action. In 2001s telecom policy for any spectrum allocation permission of finance minister is also required with communication minister. P. Chidambaram didnt follow their moral responsibility of actively take care of the auction in 2008. He approved the A. Rajas decision of auctioning, which was not beneficial for the exchequer of the country. Other politicians also ignored their moral responsibility and exploit the government exchequer for their own interests. Bureaucrats were also didnt followed their responsibility they help the minister and the corporate faces to proceed their personal beneficial strategies. A. Raja also uses some of them as his personal agent. Officials had enough power to check the scam but all saw their own interest and kept their mouth shut. So the whole case was exploitation of moral responsibility on the bureaucrats side also. Media Media is supposed as the fourth pillar in the any democratic country like India after Legislature, Executive and judiciary. (SOURCE:-The Fourth Estate by Jeffery Archer, and also said by M.K.Ghandhi). Media is to keep a watch on these estates for a successful democracy. Duty of media to put truth among the public but Rather than doing business as whistle-blower media was not following through the ethical way, they hide more information from the public. Even some of the anchors were aware about the scam which was exposed when the Niira Radia tape controversy was leaked. A NDTV anchor Barkha Dutt was alleged to have lobbied for A. Rajas appointment as telecom minister in 2008. Vir Singhavi, Hindustan times editor alleged for the reducing blames in the case. In the whole loot event some were worked truthfully and exposed the case. Deccan herald was the first one to expose the case after that Tahelka Magazine also exposed some more issues.

Corporate sector it is consider that the corporate should run their business with fair and transparency. Pay taxes properly, should show their balance sheet correctly, participate in corporate social responsibility actively etc. But in the 2G scam case, it is evident from the available information, that some of the companies of the corporate sector manipulated the information and submitted the false certificates and affidavit to attain the benefits by openly flouting the norms to attain the benefit from 2G spectrum allocations. Some were allegedly involved in the lobbing to make A. Raja as Telecom minister in 2008. (SOURCE:-Niira Radias leaked Tapes, Tahelka Magazine). ROLE OF MEDIA Media played an important role in 2g scam. Sensitizing people about the loss (exchequer money) was major contribution from medias side. Even though it is said that media people were well aware of these issues but they came out in open after considered elapse of time. But media has also been accused of providing trivial insights and its playing role of judiciary. The media has targeted easy scapegoats, revolving their stories around a selected few because even they know that it is difficult for them to target certain big names like the Tatas, Ambanis and Ruias. It is a well-known fact that the trial for 2G Spectrum case is going on, and nobody can be proved guilty unless and until it is proved in court, but, without taking it into account, our media has started blaming people and highlighting a only few names without mentioning the rest of the suspects. It make no sense when media is covering things like life of accuse in jail for 2G scam, where in India media is said to be fourth pillar after Legislature, Executive and Judiciary, Due to the important role of media in shaping public opinion. It rings bell whenever the case of abuse of power, corruption etc. comes into picture. Recently one article covered as to how the summer break in courts would make it difficult for the 2g scam accused to enjoy air conditioners in the court rooms and enjoyment for those eight hours. Well, how does it matter as to who is sharing oranges in the court room and who is chatting with whom? Is it the job of the journalists to cover these things? Can this be called real journalism? The job of a journalist is to share the facts related to the 2g scam case, chart its progress and present everything without distortion. Some important media persons who came in the picture for 2 G scam were Niira
Radia (A corporate lobbyist, exposed by Niira Radia tape controversy which was leaked), which was found to be main connection between lobbyists ministry and bureaucrats .She was the source of communication between these people. (Source: Times of India, November r 18 , 2 01 0, PP-11)

ROLE OF TRAI The officers of the department of telecom instead of supporting A. Rajas policies of allotting the spectrum should have recommended A. Raja by making him aware of the loss which would be incurred by not allotting the spectrum on the current prices, which would further result in the loss of exchequer. According to MOCIT through the current telecom minister Kapil Sibal, the then (2008) telecom minister A. Raja followed the recommendations of the telecom regulatory authority of India (TRAI) i.e. TRAI did not recommend auction since 2003, therefore they took the way of first come first serve (FCFS) policy for allotment of 2G spectrum.

According to MOCIT the loss shown by the comptroller and auditor general of India (CAG) is not the actual amount lost in the 2G spectrum allotment. Whereas it argues that the methods followed by CAG in calculating the overall amount were based on their assumptions that is shown below

New licenses (122)

Rs. 1, 02,498 crores

Dual technology (35licenses)

Rs. 37,154 crores

Spectrum beyond contracted quantity of 6.2 Mhz

Rs. 36,993 crores

Total loss

Rs. 1, 76,645 crores

MOCIT argues that instead of the loss calculated by CAG i.e. Rs. 1, 76,645 crores, the actual loss is zero based on the following tactics Government has not made up its mind on the charge for spectrum beyond 6.2 MHz, therefore loss of Rs. 36,993 crores to be excluded. y The remaining loss of Rs. 1, 39,652 crores is only Rs. 99,000 crores since government has only given 4.4 MHz spectrum, while CAG has wrongly calculated loss based on 6.2 MHz y Since the 3G auctions were held in 2010, but 2G licenses were given in 2008, the time value of loss of spectrum is not Rs. 99,000 crores.(Curiously, MOCIT is willing to discount government revenue between 2010 and 2008 but doesnt see the loss from spectrum given in 2008 at 2001 prices) y Since spectrum was given late and not in 2008, license term is 19 years but not 20 years. Therefore the loss is down to Rs. 53,000 crores. y Since 3G spectrum is three times more efficient than 2G, the loss is further down to Rs. 17,755 crores. y Since 4.4 MHz is free with UASL license anyway, the actual loss is zero. Therefore, the aggregate loss is rounded off to zero from Rs. 1, 76,645 crores. In addition to the above argument MOCIT also express that revenue maximization is not government policy. Therefore government acted in public interest. Lower price and telephone density is more important than exchequer revenue. (Source: Rajeev Chandrasekhar M.P., 2G Spectrum Scam Report) y TRAIs reply over the above recommendations of MOCIT As the telecom regulatory authority of India is the regulatory body of all the issues related to telecom industry, after listening the recommendations of the MOCIT gave its recommendations which directly contradicts by the above given recommendations of MOCIT.

But instead of recommending later i.e. in 2010, it should have taken immediate action against the department of telecom in the year 2007 when 122 2G spectrum licenses were allotted to different companies based on the sole discretion of A. Raja, as A. Raja claims that he had based his decisions on the TRAIs regulations. Following are the recommendations given by TRAI in the year 2010 when the issue was highlighted by an Delhi based NGO Telecom Watchdog in the year 2010:y y y All the service providers having spectrum beyond the contracted quantum should pay the access spectrum charges at the current price. Authority is clearly of the view that contracted spectrum for all access licenses issued in or after 2001 is 6.2 MHz; CAGs calculation is based on this. The 3G price had been determined in 2010 that the 3G price discovered for 2G spectrum beyond 6.2 MHz in 1800 band and 1.5 times 3G prices in 900 MHz band.(Clearly MOCIT thinks time value of money work between 2008 and 2010, but fails between 2001 and 2008) UASL guidelines, Section 37 clearly states spectrum allocation should be done on the basis of Subject to availability principal. TRAI under its recommendation clearly stated that spectrum efficiency of 2G and 3G is comparable.

y y

Role of comptroller and auditor general (CAG) CAG has based its report on department of telecoms files with CBI (affidavits), TRAI statutory recommendations, ministry of finances files/comments, public documents on website of ministry of corporate affairs, replies of both department of telecom and ministry of finance, and License agreement. Therefore, there lie no assumptions in the report presented by CAG.

ROLE OF WHISTLE BLOWER The risk a whistle blower takes is a paramount. Whistle blower can be anyone, person within the company or industry watch dog. In this case CAG (comptroller and Audit General) played a role of whistle blower. Industry watch dogs look after industry systematic working. DoT (Department of telecom) and TRAI (Telecom Regulatory Authority of India) were the two main regulatory body involved in 2G allocation. TRAI recommended instruction to be followed during spectrum allocation in 2007 but A Raja didnt follow those instructions and carried on with 2001 instruction. But those instructions were based on 4 million cell phone subscribers in 2001 and TRAI wanted many telecom players to come in and play on level platform, whereas by 2007-2008, the number of cell phone subscribers was around 350 million. Thus by fixing license fees at 2001 prices, the Telecom Ministry enabled companies that were allotted licenses to command huge saving. Two officers had vigorously opposed the aforesaid DoT Policy (the Finance member and the Secretary of DoT) resigned/retired from government. The two others who had opposed undue

favors to Swan were transferred (they stuck with their ethics and didnt compromise). CAG came out with a report in 2010 about 2G spectrum allocation. It played a major role in CBI report. CBI made a case against A Raja based on the loss1.76 lakh crores to exchequer as per CAG report. During the process investigation the telecom regulator said it did not recommend "any price" for spectrum beyond 6.2 megahertz except in August, 2007, when it suggested the imposition of extra charges on telecom waves held by service providers beyond 10 MHz of spectrum. In its communication to the CBI dated August 20, TRAI Secretary R K Arnold said, "TRAI repeatedly held the view that telecom services and spectrum should not be treated as a source of revenue for the government. It is against this background that TRAI did not recommend any increase in the entry fee for new players, by way of indexation or otherwise." CAG report didnt mention that A Raja was at fault but it just merely stated that loss of 1.76 lakh crores. It opened a lid of investigation on dirty politics, bureaucratic and crony capitalism. This news caused sensation in media and opposition took a toll on ruling Government of corruption. IMPACT OF 2G SCAM ON INDIAN ECONOMY : Loss is eight times of Indian health budget. Loss is three times of education budget. This is equivalent to three percent of our Gross Domestic Product. Loss is equal to our defense budget. The amount of loss is equal to 14.3 percent of our external debt. This will have deep impact on social sector investment. (Source: India Today, 29 November, 2010, PP- 23.* The Tribune, 14 December, 2010, PP-1) CURRENT STATUS IN 2G SPECTRUM CASE: Accused in the 2G scam case like A. Raja, Kanimozhi and five other corporate honchos are granted bail by Supreme Court and now they are out of prison. In the judgement given by the Supreme Court on 2nd Feb-2012, the court said that A. Raja was responsible for the loss incurred to the exchequer through 2g spectrum allocation in 2008 and in the further proceedings, SC ordered for the cancellation of all 122 licences which allocated in 2008 and look for the fresh allocation of spectrum. As per the estimates cancelled licences will affect only about 5% of Indias nearly 900 million subscribers. In another development, Delhi Court dismissed Subramanian Swamis plea to make P. Chidambaram co-accused in the 2G case. After the SC verdict TRAI started looking for the fresh auction for the spectrum allocation. y y y y y

SUGGESTIONS AND CONCLUSION: It is appropriate time when India should seriously think to develop its own codes of conduct, rules, regulations, policies, procedure and a paradigm for good governance (corporate). Malgovernance and corruption in the national life not only creates barrier to a level playing field but also stifles the competition, merit, efficiency, effectiveness and productivity. Therefore, our policy makers should act as a trustee of public and should take the following steps to establish rule of trusteeship in governance.

1. To maintain the credibility of system Government should appoint joint parliamentary committee to prove the 2 G scam. 2. Criminal actions should be taken against all those companies and individuals who are the part of this scam. 3. Government should strictly recover the amount of penalty which is imposed on some companies. 4. Government should provide the chance to new and serious companies to enter in the business. 5. Our policy makers should seriously think to develop the Trusteeship model of governance on basis of ancient Indian wisdom.

REFERENCES [1] (Source: Times of India, 17 November, 2010, PP-9., India Today, 29 November, 2010, PP-24.) http://timesofindia.indiatimes.com/2g-spectrum-scam/specialcoverage/6940688.cms [2] Manuel G. Velasquez, M. (2010). Business Ethics - Concepts and Cases. New Delhi: PHI Learning Private Limited [3](http://articles.timesofindia.indiatimes.com/2012-02-07/india/31033658_1_spectrumscam-2g-senior-cbi-officer) [4] Paranjpe, H K, Gandhian concept of trusteeship Gandhi and Economic Development, Radient Publishers, 1991, PP-152-170.

[5] Publishers, 1991, PP-152-170. Sinha, Jadunath, Indian Philosophy Vol. II, Motilal Banarari Dass Delhi, 1999. [6] http://www.livemint.com/2011/05/19153912/Timeline-2G-scam.html livemint the wall street journal [7] http://www.ndtv.com/article/india/what-is-2g-spectrum-scam-66418 May 05, 2011 [8] (Source: Corruption Perceptions Index) http://en.wikipedia.org/wiki/Corruption_Perceptions_Index [9] Tehelka Magazine, Vol. 7, Issue 48, Dated December 04, 2010 http://tehelka.com/story_main48.asp?filename=Ne041210CoverstoryII.asp http://tehelka.com/story_main48.asp?filename=Ne041210CoverstoryII.asp [10] The Fourth Estate by Jeffery Archer