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Pranab Mukherjee is a lucky man. At one stroke, without any effort on his part, he is going to earn around Rs58,000 crore from the auction of 3G (third generation) telecom spectrum. The government is now pushing its luck further by asking telecom operators with excess 2G spectrum to pay 3G rates. If Pranab gets lucky again — he probably won’t, since the likes of Bharti and Vodafone are not going to pay up just like that — that’s another Rs12,000-15,000 crore in the kitty.

No Indian government deserves a Rs70,000 crore bonanza for doing nothing at all. If it does, you can be sure it will squander it. During UPA-1, the government wasted its unearned tax bounties in pursuing pork-barrel schemes, and ruined the NDA’s legacy of an improving fiscal situation. Now, with Rs70,000 crore as money for jam, and another Rs40,000 crore probably coming in from public sector share sales this year, Mukherjee will be called a great finance minister for doing little more than sell the family jewels. And that’s not counting the auction of Wimax spectrum that is to follow the 3G auction. All told, Mukherjee is going to be sitting on over Rs1,20,000 crore (or more) of free money by the end of the year, if all goes well.

One need not grudge Mukherjee his luck, but his problems begin now. With so much money in the till, what is to stop Sonia and Rahul Gandhi to demand that more money must be spent on this social project or that? They will be hailed as messiahs of the poor and poor Pranab will have to dish out the money when he knows that there can be no end to populism. Money that comes in effortlessly slips out effortlessly, too, and the fiscal consolidation one needs will be delayed further. The moral: easy money destroys prudence and character.

Now let’s look at the spectrum auction itself, and why it is going to be another act of folly. Thanks to the way the 3G auction system was structured, everyone bid over the top for spectrum. At last count, the highest bid for an all-India footprint had topped Rs14,400 crore; Mumbai alone cost Rs2,661 crore.

When you have to pay thousands of crores even before you have earned your first rupee by way of revenue, what will you do? You will obviously price 3G prices very high. High prices mean products and services will be oriented towards the very rich, which is the exact opposite of the inclusive growth the UPA talks about.

A bit of history is in order here. Why did the telecom opening up under Narasimha Rao fail? Same reason. Very high bids, and unrealistic expectations from the market. People who owned mobile phones in the mid-1990s will recall that every minute of talk-time cost Rs16-32, depending on the time of usage. Little wonder mobile services were heading nowhere. It took a new telecom policy and a shift to revenue-sharing mode to rescue the industry from oblivion.

Will the high prices paid for 3G lead us to the same dead end? Probably not, for history never repeats itself exactly. And India is now a growth tiger which can afford more high-priced services at the top of the pyramid. But one philosophical point must be noted: is it better to have low entry prices and higher revenues from sustained volume growth or high entry prices and low volumes? It boils down to the golden goose argument. You can either kill the goose to get all the eggs upfront or keep it alive to earn steadily growing revenues over a very long period.

By pushing 3G into the high-priced auction circuit, Pranab Mukherjee wants to collect their booty upfront since they have a huge budget deficit to tackle this year. But, in the process, he has opened the floodgates to politicians to embrace populism with a vengeance. Pranab will be unable to free oil prices, the fertiliser subsidy reduction plan will be resisted more strongly by vested interests, and every other reform will be viewed with political suspicion.

Thanks to the spectrum gusher, the fiscal crisis can be postponed. The success of the 3G spectrum auction brings with it the prospect of embedded economic failure.

Mukherjee will find himself politically hemmed in while trying to run the economy prudently. It’s worth recalling: we reformed last in 1991-92, when the economy was up the creek without a paddle.