Economic Survey 2017: Policy making constrained due to bureaucratic caution

New Delhi: Policy making in certain areas like telecom and banking has been severely constrained due to "abundant caution in bureaucratic decision-making", the Economic Survey said on Tuesday.

It added that senior managers in public sector banks fear becoming the target of the so-called '4 Cs' -- courts, CVC (Central Vigilance Commission), CBI (Central Bureau of Investigation) and CAG (Comptroller and Auditor General).

"Policy-making in certain areas has been heavily constrained, as a way of ensuring that decisions do not favour particular interests," the survey tabled in Parliament said.

It said that there is now adherence to strict rules -? for example auctions of all public assets - that may not necessarily be optimal public policy.

"In telecommunications, the judicially imposed requirement for transparency and auctioning, while responding importantly and appropriately to the previous experience of corruption, has created a public policy dilemma," the survey said.

The Supreme Court in February 2012 had quashed 122 telecom licences issued in 2008 and asked government to allocate spectrum for mobile services through auction.

The CAG had said that the spectrum allocated resulted in notional loss of Rs 1.76 lakh crore to the national exchequer.

The government in October 2016 auctioned spectrum worth Rs 5.66 lakh crore but received bids worth only Rs 65,789 crore.

"In some cases, it may be socially optimal to sell spectrum at lower than auction prices because of the sizable externalities stemming from increased spread of telecommunications services.

"But the understandable distrust of discretion means that methods other than auctions could be perceived as favouring particular parties," the survey said.

It said that there is abundant caution in bureaucratic decision-making, which favours the status quo.

"...It is well-known that senior managers in public sector banks are reluctant to take decisions to write down loans for fear of being seen as favouring corporate interests and hence becoming the target of the referee institutions, the so-called '4 Cs': courts, CVC (Central Vigilance Commission), CBI (Central Bureau of Investigation) and CAG (Comptroller and Auditor General)," the survey said.

It said this encourages ever-greening of loans, thereby postponing a resolution of the problem.

The survey also observed financial pressure on telecom operators with the entry of new players.

Talking about the problem in servicing of debts, the survey said, "Stress has also expanded to the telecom sector, where interest coverage ratios have deteriorated as new entry has increased competition, prompting a major round of price-cutting. In short, stress on the corporate sector is not only deepening; it is also widening."