Ashok Sanjay Guha in the Telegraph:
Selling an asset at a rate far below the market price has two sets of consequences. First, it creates an incentive for the first buyer to resell, directly or in a roundabout fashion, as soon as it is possible to pocket the enormous margin between his purchase price and the market price. Second, the possibility of such enormous profit generates an excess demand for the asset in the first round: potential buyers have, in consequence, an overwhelming incentive to offer bribes to the arbiters of the sale process so as to influence the allocation of licences in their own favour. These are not mere hypothetical possibilities. They can be predicted with perfect certainty as the inevitable outcomes of pricing below the market rate.
...When they decided on the 2G policy, were the prime minister and the finance minister totally oblivious of the logical implications? Had Manmohan Singh left his knowledge of economics behind at Oxford or at the Delhi School? Had Chidambaram forgotten his experience of corporate management and law? Having given their blessings to the sale of a scarce resource far below market price, was it not incumbent on them to exercise the strictest vigilance so as to avert the predictable consequences — bribery and loot? Instead, Singh instructed his officers to keep themselves ‘at arm’s length’ from the goings-on in the telecom department. Was this complicity or child-like innocence? I leave the reader to draw his own conclusions.
Read on at the Telegraph: A Saga of Personal Gains