-Shradha Diwan, Research Analyst
9 Dec, 2010

A spate of corruption scandals has hit India in the recent past, souring investor sentiments toward the country and pushing the ruling government in an embarrassing situation. Details of some major scandals that have broken out recently are:

TELECOMS LICENSE ROW:

As India's telecoms ministry gave out lucrative licenses and radio spectrum in 2007-08 at below-market prices, the country may have been caused to lose up to $40 billion in revenue - equivalent to the defense budget. A report from the Comptroller and Auditor General of India (CAG) also revealed that several rules were flouted when the licenses were given out; this in turn led to many ineligible firms getting licenses. The report highlighted that the huge sum of money collected as wireless-spectrum fees had been squandered by the government's telecommunications and information technology minister.

According to the CAG report, units of realtor Unitech were given licenses despite not having adequate capital. The units are now part of the India operations of Norway's Telenor. Swan Telecom was given a license despite being disqualified due to a greater than 10% ownership of No. 2 telecoms Reliance Communications in the company; the company has since been bought by UAE's Etisalat. Undue benefits were also reaped by Reliance Communications as it sought permission to offer more services under the popular GSM technology. The auditor's report said many of the 122 licenses were given to "ineligible applicants" who "used fraudulent means" and then quickly sold their stakes at a high premium.

Swan Telecom Pvt. Ltd. Bagged an allotment of licenses in 13 circles worth Rs. 1,537 crore. Within weeks of bagging the licenses, the company sold 45% stake to Etisalat for Rs. 4,500 crore. Unitech obtained licenses for 22 circles for Rs. 1,651 crore. It later sold them to Telenor (a Norwegian company) at a whopping sum of Rs. 6,120 crore.

The Indian government has often held up telecommunications as a mark of its ability to free industry from the stifling effects of the so-called License Raj, the traditional practice of doling out permits to sell goods or services, often to well-connected families that paid bribes. As the government's control over many private companies across industries increased, the practice of License Raj ended, though nominally; this was mostly in the early 1990s and the market forces were allowed to determine the survival and failure of companies. However, recent investigations revealed a lack of transparency and fairness, implying favoritism of the ministry towards some companies.

Investigations into the scandal have been focused around the telecoms ministry, firms, and lobbyists. The telecoms minister had to resign. Allegations of corruption in the ministry are being investigated into by the CBI. Nira Radia, a top lobbyist who represents companies like Tata and Reliance Industries, has also been questioned by the authorities as part of an investigation into whether money laundering and forex laws were broken when the licenses were purchased.

LOAN BRIBERY SCAM

Top officials of Indian banks, lenders and financial firms have been accused of taking bribes to grant corporate loans. According to media reports, the size of the scam may well run into millions of dollars, although the exact magnitude of the scandal is not known.

The very top rung some of India's public sector banks and financial institutions have been arrested by the CBI for allegedly sanctioning loans in return for bribes; these include the chief executive of LIC Housing Finance and senior officials at state-run Central Bank of India, Punjab National Bank, and Bank of India. According to the CBI, "A private financial services company, its CMD and other associates were allegedly bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans. They were also gathering confidential business information from financial institutions". It was also found that companies were investing the loan amounts in their stocks to artificially raise share prices and sell them at inflated prices.

Money Matters is the private company involved in the scam and three of its senior-most officials, including the Chairman and Managing Director, have been arrested. The CBI named several Indian companies in its filed court documents, including wind turbine maker Suzlon Energy, infrastructure company HCC's Lavasa unit and real estate firm DB Realty.

COMMONWEALTH GAMES

The mega sporting event held in India in the month of October, which cost up to $6 billion, was dogged by several cases of alleged corruption, including those related to equipment purchases and contracts' issuance. More 16 projects with possible irregularities have been identified by the country's anti-corruption watchdog.

Allegations include tenders' manipulations in the building of stadia and other games infrastructure, and inflating bills for equipment such as treadmills and toilet paper rolls. The CBI is conducting a probe into the $21.7 million of misplaced funds.

HOUSING SCAM:

Politicians of the ruling government, bureaucrats, and military officials have been accused of taking over land meant to build apartments for war widows. Several high-profile properties are being investigated into for several violations of norms, including environmental laws and land-use rules; these include the Arabian-Sea facing block with 103 apartments in an upscale Mumbai district, Colaba, which falls among the world's most expensive pieces of real estate. It was originally meant to be a six-storeyed apartment block for housing Kargil war heroes and widows. However, it was surreptitiously converted into a plush 31-storeyed building and has over 100 members, including former service chiefs, senior serving army officials, bureaucrats, politicians and their kin, and in at least one case even a politician's driver.

Local media has estimated the value of the apartments at $1.8 million each, whereas they were sold for as little as $130,000 each. The government has effectively taken back permissions allowing owners to occupy the apartments, leading to the disconnection of water and power supply ever since the scandal caught the eye of the public. Investigations into the case have also been started by the CBI.

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