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Telecom scandal shakes India’s most beloved industry Add to ...

Within the leafy, trash-strewn Patiala Court complex in central New Delhi, a telecommunications scandal that stretches into the uppermost echelons of political and corporate power in India is reaching a sort of apex.

There are 22 television trucks parked outside the front gates while, inside, the tiny courtroom strains under the crush of more than 30 lawyers, a horde of khaki-clad police officers and dozens of journalists. The mass stirs as M.K. Kanimozhi, the daughter of Tamil Nadu’s chief minister and a member of Parliament from that southern Indian state, strolls into the room in a lime green sari. Her lawyer’s opening statement that May afternoon attempts to deflect allegations she’s involved with a TV executive in a multimillion-dollar slush fund. It is interrupted when a lawyer faints from the heat, crumpling to the floor, prompting more chaos.

Ms. Kanimozhi’s bail is later denied, and she is sent off to Delhi’s Tihar jail – where she remains, three months later, the latest of India’s formerly invincible upper crust to succumb to justice in a country that has long been inured to corruption. The day before, five mid-level telecom executives sat in the same courtroom. Outside, a defence lawyer for one of the executives leans against a wall. “The real people who did this, the big people, are not being charged. The bigger issue is why Anil Ambani and Ratan Tata are not an accused,” he says, speaking of two India’s most well known business leaders. Gesturing inside, he adds: “These are the scapegoats.”

Before, it would be absurd for any Indian to suggest that billionaire tycoons be prosecuted. But this ongoing trial, over the sale of wireless licences in 2008, has triggered a bout of soul-searching in India, where shifting demographics and a growing middle class are changing how citizens view corrupt politicians and bribes. The crisis and protests currently gripping India’s government – led by anti-corruption campaigner Anna Hazare, who is publicly undertaking a “fast unto death” – was partly prompted by the staggering sums involved: Estimates of loss to India’s exchequer range as high as $40-billion (U.S.), making it the biggest corruption case in India’s history.

It also represents a breathtaking fall from grace for India’s showcase industry. Telecoms here add as many as 20 million subscribers per month, making it the fastest growing wireless sector in the world. That growth comes at a cost, however: Prices are under constant pressure in the hyper-competitive market, and telecoms are plagued with extensive theft, growing red tape, and policy makers who increasingly favour home-grown companies over foreign imports. Vodafone Group Plc, one of the world’s biggest wireless companies, is currently struggling to fend off the government’s attempt to reclaim what it says are $5-billion in unpaid taxes.

The difficulty even global giants have in India speaks to the risks all companies face in emerging economies, where the allure of volume, and a positive story to tell in Western boardrooms, often glosses over the reality of market conditions.

The scandal over the wireless sale began on Jan. 10, 2008, when a couple of dispirited government officials visited the office of Subramanian Swamy, a former politician and Harvard professor, with startling information.

Telecom ministry bureaucrats had sent out a notice at 2:45 p.m. that afternoon, asking companies interested in purchasing wireless licences, worth hundreds of millions of dollars each, to be present at the ministry with bank drafts a mere 45 minutes later – a feat impossible for even the most plugged-in executive.

Mr. Swamy, who has twice served as a government minister, says representatives from the companies that won licences were already waiting in the antechamber of the telecom minister – Andimuthu Raja, who remains in jail during the ongoing trial – with bank drafts pre-dating that afternoon’s release. “The remaining people who wanted to storm in, they used bouncers to get rid of them,” Mr. Swamy says, in a basement office below his residence in New Delhi.

Soon after, he says, the telecom minister made a series of personal purchases that included six Mercedes. “Mr. Raja, who came from a very poor family, from a very poor part of Tamil Nadu – suddenly I saw him looking jazzy,” Mr. Swamy says. “I knew something had happened.”

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