The Indian Techonomist: bulletin

Copyright (C) 1996, Rishab Aiyer Ghosh (
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Indian ex-Minister for Telecom raided; Harris Corp jv in trouble

August 19, 1996: On Friday night about US$ 1 million in small-denomination rupee notes was found in the homes of Sukh Ram, who was Communications Minister during the past year's telecom privatisation process. On Saturday Runu Ghosh, a senior official in the Department of Telecommunications (DoT), was arrested on corruption charges, including having allegedly favoured an Indian telecom equipment manufacturer Advanced Radio Masts Ltd (ARM) in purchase contracts. ARM, which denies being favoured, is involved in two projects with US-based Harris Corp, in equipment manufacturing and as a joint bidder (with Harris and Shyam Telecom, another Indian firm) for telecom licences.

Mr Sukh Ram has revelled in charges of corruption before, notably during protests in Parliament after the announcement of changes in the bidding process to the benefit of one of the bidding consortiums (comprising the Indian HFCL, Israeli Bezeq and Thai Shinawatra). More significantly has been his instutionalised subversion of the checks and balances supposed to be present in the DoT's bureaucratic purchase process. Mr Sukh Ram liked to clear personally every purchase, and every tender for equipment. He either transferred or ignored bureaucrats objecting to this breach of procedure - which reportedly extended to his control of the purchases of government-owned but independent MTNL, which runs the phone network in Delhi and Mumbai (Bombay).

The raid resulted from police investigations into a DoT contract for MARR (multiple access rural radio) systems awarded to ARM, a small (at the time of the order, in 1992) Indian telecom equipment manufacturer. The DoT allegedly paid ARM approximately $500,000 more than the order was worth. ARM claims that the DoT tried to reduce its price by that amount, and eventually paid the full price instead; it denies links to the Minister. ARM is in the process of setting up a $3.5 million joint venture with Harris Corp for assembling small exchanges in India; it is part of the Telelink consortium whose other members are Shyam Telecom (India), Harris Corp and Guangdong PTT. Telelink was the winning bidder for a licence for basic telephony in the northern state of Rajasthan.

Telecom companies have for long grumbled privately about the Ministry's under-the-table "processing charges" - orders and contracts were generally delayed until a personal meeting with the right people - but lacking proof of demands for bribes and fearing that the competition may not go along nobody openly protested. Some companies in particular have been highlighted by the press for their complaisance: HFCL, ARM and Shyam Telecom among others. All three are small firms that grew over 100-fold in turnover in the past five years - coinciding with Mr Sukh Ram's term in office.

This does not mean that growth was the result of bribing the Minister, of course. It coincided with the general growth of the Indian telecom equipment industry which has also occasionally been astonishing (the Telecom Equipment Manufacturer's Association estimates 250% annual growth in exports this year), as well in the opening up of the DoT purchase system to the private sector (previously it bought equipment only from govenment-owned firms). Small start-ups succeeding rapidly would be expected in such a scenario, and the huge growth figures of these three companies is balanced with their small revenues even after growth - under $100 million all.

The more pertinent point is that as long as the DoT was the only (domestic) purchaser of equipment, it held the fate of small (and even large) companies in its hands. If it was a private company, it would have used its monopsony to beat down purchase costs; as a branch of government its procedures allowed that fatal control to fall into the hands of greedy bureaucrats and politicians. Almost any company, for any purpose, had to pay something to be considered. A previous Minister allegedly demanded $100,000 from all bidders for a particular tender - though the winner would naturally be decided on merit.

It was hoped that the opening up of the telecom service sector to private providers would change this, offering equipment suppliers more customers (each in competition with the DoT's own network, though, which would remain by far the largest buyer). This privatisation process, though underway fairly successfully in pager and to a lesser degree in cellular services, has all but come to a halt in the case of basic wireline telephony. One reason is that basic telephony is the only service the DoT itself provides, and where it would face real competition both as a seller of services and a buyer of equipment.

Mr Sukh Ram's million and Ms Ghosh's jewellery and Swiss watches form only the tip of a golden iceberg. With the DoT's $1.5 billion worth of equipment purchases every year, $1 million is an unbelievably small profit margin - particularly as the police and tax officials were only searching for half that amount. Ms Ghosh is believed to be keen on assisting in the investigations, and is thought to know much - the Minister could hardly clear all the purchases on his own, and had allegedly put her in a position of considerable power. So more details should come to light soon - and at any rate will keep the more corrupt of DoT officials worried stiff. Meanwhile, Mr Sukh Ram himself is believed to be in Britain or America for medical treatment, but according to early reports has simply vanished into thin air.

The former Minister did much for Indian telecom, not all negative. He realised the economic importance of communications in relatively poor, rural areas of India and benefitted politically through his insistence on state-wide telephone connectivity in his home state of Himachal Pradesh. As last week's events have definitively proved, he also recognised the importance of telephones to his own wallet (or shall we say bedsheets, plastic bags and suitcases - which is where the money was found). Did anyone say telecom in India was not commercially viable?