Tuesday, October 2, 2012
The Indian Supreme Court issued an interesting advisory opinion last week on the question whether the government could allocate natural resources only through auctions. It's answer? No. What makes the opinion important is not only the legal implications, but the time and context--a time when the Indian government's allocation of natural resources, including, most recently, coal blocks, is being questioned. Let me begin with some background to the decision and then explain the opinion of the Supreme Court clarifying the issue.
In Center for Public Interest Litigation and Others v. Union of India, petitioners challenged the Indian government's allocation of 2G spectrum bandwidth to telecom operators on the ground that the government's failure to auction the bandwidth had cost state coffers millions of dollars loss according to a report of the Comptroller Auditor-General of India (CAG) . Specifically, they claimed that by allocating the bandwidth to telecom companies on a first come, first serve basis, the telecom ministry had acted in an arbitrary and non-transparent manner, violated Article 14 of the Indian consitution, which provides for equality before the law, and acted contrary to the public interest. The Supreme Court agreed with the petitioners and held as follows:
1. It recognized that bandwidth was renewable natural resource that was vested in the state or "the people."
2. That under the public trust doctrine, which this court had recognized in earlier cases, the government had a mandate to use and allocate the natural resources in the public interest, and did not have absolute discretion in deciding how to distribute the resources.
3. That under Article 14, the government decision should be based on "sound, transparent, discernable, and well-defined policy."
4. That the administrative procedure and recommendation to issue telecom licenses on a first come, first serve basis was flawed since it enabled anyone with information to receive the bandwidth.
5. That the licenses had to be revoked and re-issued in accordance with consitutional law and other legal requirements.
6. That a "duly publicised auction conducted in a fairly and impartially" was "perhaps" the best way to allocate scarce resources.
7. It therefore ordered the ministry to cancel the licenses and re-allocate them legally.
Following the decision, the new President of India, formerly the Minister of Finance (2009-2012), Pranab Mukherjee, sought advisory opinion to clarify its decision in the 2G spectrum case (discussed above). One of several questions raised was whether an auction was the only way in which the government could allocate natural resources. In Re: Special Reference No. 1 of 2012, the Indian Supreme Court opined as follows, on that question.
1. That the suggestion that auction was "perhaps" the best method to allocate resources was limited to the question on hand in the case, i.e. 2G bandwidth, and extending it beyond would result in nullifying several other laws allocating various natural resources.
2. There was no constitutional mandate under Article 14 to allocate all natural resources by auction.
3. The public trust doctrine could be applied beyond environmental protection cases to the extent that it was enabled "high judicial scrutiny," an issue that could be addressed under Article 14, as well.
4. That the duty equality requirement imposed on the State could not interpreted to mean that under Article 14 the only legal means to allocate natural resources was through an auction.
5. That such an interpretation would imply that revenue maximization (via auction) could be equated to common good, whereas the two could constitute different goals. That distributing natural resources to the highest bidder could run contrary to the common good.
6. That some natural resource use, involving high risk investments would not attract bidders if the only means of allocating them was via auctions. In those cases the government would have to provide incentives to catalyze investment in natural resources.
7. That fear of potential abuse if auction was not a mandated method of allocation was not a legal ground for disallowing other means of distribution.
8. That since the allocation of natural resources was a matter of economic policy, the judiciary did not have the authority to dictate any one means of distribution as the preferred one; "auction as a mode [of distribution] [could not] be conferred the status of a constitutional principle."
9. Nevertheless, policy decisions such as natural resource allocation were subject to Article 14 mandate when alienation for commercial, profit-driven purposes were made in an arbitrary manner.
The opinion of the court is interesting, because it recognizes that the government has the executive prerogative to make appropriate policy decisions in promoting the common good. Perhaps, what is most important is the umbrella it provides to policies that may promote a particular policy good, say the exploitation of a resource. It would certainly be legally indefensible to prescribe any one mode of allocating natural resources. But, the court does not provide in this opinion a means for balancing common good, except to observe that arbitrary decisions will be subject to judicial scrutiny.
In this context, consider the allocation of coal blocks. According to a CAG report, the allocation cost millions of dollars in revenue. Yet, the government contended that such allocation was necessary to help mine coal in some remote areas. To be sure, some reports regarding the potential illegitimacy of the allcoation are yet to be confirmed. Taking available reports on the face value and applying the Supreme Court's interpretation, one could argue that unless the decision of the government was arbitrary, the allocations are legal and that they may well serve the common good even if they do not maximize public wealth.This is an important decision. If the allocation of natural resources are not considered to be a public good from a profit-maximizaiton perspective, especially when they may allocated to private companies that stand to profit from such allocation, how does one define common good?