SC auction rule gives clarity; to boost investment: Experts

The Supreme Court on Thursday clarified that the auction order in the 2G scam was only restricted to telecom spectrum and not for all natural resources. The apex court also mentioned in its verdict that public good was always the main objective and it cannot be compromised for revenue maximisation.

In an interview with CNBC-TV18, Ajay Bahl, Founding Partner of AZB & Co said the judgment is a well crafted one that just reinstates common sense principles. Eventually, it will help to avoid a lot of confusion, he opined. Also read: 2G case: Govt cheers SC's opinion on Presidential reference SC directive is clear; focus on aam admi: Legal experts Judiciary has right to scrutinise policy decisions: Experts
Bahl lauded the Supreme Court's approach towards acting on a balanced principle where not only the government and the bidder will benefit, but public welfare is also taken into consideration.
Adi Godrej, President of CII too welcomes the verdict and feels, there will now be a pick up in infrastructure activity. As the negative perceptions are cleared, the industry will be in a better mood to reinvest now, feels Godrej. Moreover, he is also hopeful of seeing an improvement in investment sentiment from hereon.
Godrej also emphasizes on the need for the goods and services tax (GST) to boost GDP to higher levels. Here is the edited transcript of the interview on CNBC-TV18.
 
Q: Does the Supreme Court statement materially change the terrain. One would have thought that these would be the principles and they were confused by the telecom order, the 2G order and now the Supreme Court has restated what it meant. So it doesn’t materially change the terrain you think? Bahl: It doesn't change the terrain, I think it clarifies it and the clarification was needed. At the end of the day it's a wonderfully crafted order and has restated and enunciated what ought to be common sense principles, which are based from their reading of the constitutional mandate. It doesn't change anything but it sets at rest a great deal of confusion. Q: If one went through the verdict, especially in the part where the learned judges are quoting several instances of coal allocation they seem to be indicating that where allocation of mineral resources is quite clearly for profit, as they would be, where the clear example that the judge points out is power itself is subsidized – fine, you may be able to give the coal at a non-competitive price but where the end product is like steel or merchant power it is benefiting from the vagaries of market out of competitive bidding. Would you now say that a kind of competitive bidding would become mandatory for even sectors like coal? Bahl: I think the principle is that everything should be balanced, there has to be welfare to the people, there has to be a balance for the entrepreneur and the state must also benefit. All the three considerations must be balanced and just because there is a free market for example, it doesn't mean that you must only give something to the highest bidder because it could drive prices completely off back.
So the way, at least as we read it was that it has to be fair, it has to be transparent, it must be competitive but, the purpose is to serve the public good. Public good has to be balanced in all consideration; government must take its fresh share, the entrepreneur should be entitled to grow the industry and the pricing should not be such that the only two people who maximizes revenues is either the government or the private entrepreneur.  Ultimately, the public suffers because the prices are to be preserved at a very high level because at the end of the day, the entrepreneur is also going to make money.
As I read it, it's all about balance and that's the fairest way in which it must be interpreted. They have now left the room open. If in future a policy is seen as being patently unfair and violate article 14, the court has every right to strike it down. Q: Now that one can look forward to a more predictable policy for allocation of natural resources like coal etc, how much of a relief do you think it would bring about to various industries be it coal, be it mining? Godrej: I think this is a very good judgment, a very balanced judgment when the government went for presidential reference to the Supreme Court. The Supreme Court asked the CII to comment on it and we did comment. The summary of our comment was auction should not be the only method, it should be the preferred method. However, it cannot be the only method.
Whatever other method the executive decides on must be transparent and fair and the judiciary should come into the picture only if transparency and fairness is compromised. So by and large, I see the judgment very much in the direction of what CII recommended. I welcome it.
I think it will clarify that the executive has opportunities to use other methods of allocating natural resources but what the judgment emphasizes is that whatever method is used, it must be transparent and fair and not arbitrary. That will go a long way in ensuring that we do not have any untoward way of allocating natural resources. Q: It becomes imminent therefore that allocation of coal perhaps will not happen and there will be some kind of a bidding that will be introduced. Godrej: It depends on what that coal is to be used for. If it's for power generation, power prices are controlled or decided by agreement and it need not be an auction. It will depend on what the natural resources are being used for.
Even things like water, air are natural resources and obviously, not everything can be auctioned. Where auction would be the appropriate method yes, then auction is the best way to discover the right price and to ensure fairness and transparency.
_PAGEBREAK_ Q: On the ground what are you expecting to see, do you see more projects getting cleared now that there is better clarity, at least of allocation of these resources because coal shortage still continues to be such a big issue? Godrej: Yes, I do feel that we have been in a bit of a limbo for the last couple of years because it was not clear what needs to be done. There were a lot of complaints of lack of fairness and transparency. I think this will clarify a lot, government would be able to move ahead.
The country has the natural resources, we have very large resources of coal for example, why do we need to import coal? I think this will clarify things, things will move ahead, projects will move ahead. Infrastructure projects will also move ahead and I do hope that this will help resolve the current slowness in policy and decision making. Q: Do you think that unwarranted litigation will come to an end or will reduce or do you think actually this opens the scope for some litigation? Bahl: Litigation is a never ending process. I cannot say that this will end litigation because the court has said that policy and the fairness of the policy is within the jurisdiction and therefore, the courts can interfere under article 226 or in the Supreme Court if it is a violation of article 14.
I think its just that the principle got sharpened and in some ways the supreme court hasn’t overruled. It was an opinion, so they cannot overrule the decision but they have relied on a number of prior decisions which said that a tender or a process of tenders is probably the most desirable but, not the only one.
There is a very old case where an antibiotic plant was being licensed and the authorities based on the strain thought they were going to get it. One of our clients had bid and they were not the highest bidder. But, there was a very detailed analysis and the strain that we were offering for the product was the better strain. The other pharmaceutical companies had not developed this strain and they chose us versus the highest bidder and the Supreme Court upheld it. This was many years ago.
I think every now and then we need a restatement of what the real principle is. I do not think it will necessarily curb litigation. There is a direction given to the government as Mr. Godrej said to be more transparent, fair, open, and competitive. If all the constitutional parameters are met then litigation ought to be reduced and if the right methods are followed in the allocation of natural resources. Q: Give us a final word, the Supreme Court’s statement itself laying down or restating as Mr Bahl said the constitutional principles and several other moves by the government. We understand that even the retrospective tax that was announced will perhaps not invite interest in penalty, the way in which GAAR has been postponed so to speak and ofcourse the Shome committee coming with fresh clarifications on that matter, a whole host of things that have happened, do you think industry is now in a mood to reinvest? Godrej: Very clearly, I think the negative perception that was created about our country, both outside the country and within the country, has been corrected to a very large extent. The reform measures are very welcome. I think more such reforms measures will come out in the next few weeks.
That will clearly be a great boost to the sentiment and perception about India. I think both international and Indian investment into the Indian economy will grow and that will enable us to get back on reasonably good GDP growth path soon. But, ofcourse the biggest reform that can get us back to that 9% GDP growth rate is in the goods and services tax and if we are able to solve the issues that are coming in the way of an early implementation of the goods and services tax, I think India can do extremely well in the year 2013-14 and after that.