Prime Minister Narendra Modi, former Congress President Sonia Gandhi and Congress President Rahul Gandhi. (Source: PTI)

Graft Case That Pushed Modi to Power Rejected by India Court

(Bloomberg) -- Prime Minister Narendra Modi may have just lost his most-used political weapon -- his anti-corruption crusade. 

A court in New Delhi acquitted a former telecommunications minister in India’s biggest graft case, which federal investigators alleged had cost the government as much as 309.84 billion rupees ($4.8 billion). All others involved in sale of airwave licenses in 2008 were also acquitted.

With eight states going to polls in the coming year, the verdict is seen as a blow to Modi’s Bharatiya Janata Party, which has won a series of elections since 2014 capitalizing on corruption charges against the previous Congress-led government.

It may prompt Modi to hunt for fresh issues going into provincial votes before seeking re-election in 2019. His boldest moves -- an unprecedented cash ban and a nationwide sales tax -- were also aimed at rooting out corruption but caused disruptions to the economy.

"This is a very awkward moment for Prime Minister Modi -- his entire campaign was built around allegations about this multi-billion scam and that the previous government was corrupt," said Nilanjan Mukhopadhyay, a political analyst and author of a biography on Modi.

This week Modi returned to power in his home state, but it was a hard-fought battle. The Gujarat election, considered a bellwether before the 2019 vote, was seen as an early indication that Modi’s legendary popularity has taken a hit, particularly in rural areas. 

The results that showed that Modi "is not all that invincible," Mukhopadhyay said.

No Scam

The lower court acquitted former Indian telecommunications minister Andimuthu Raja on charges of corruption and cheating in the sale of airwave licenses in 2008 that derailed the-then Manmohan Singh-led government.

"A huge scam was seen by everyone where there was none," the verdict read. "Some people created a scam by artfully arranging a few selected facts and exaggerating things   beyond recognition to astronomical levels."

Justice O.P. Saini said Thursday that investigators could not prove that Raja along with some officials from companies that won the licenses for telecom services had conspired to receive kickbacks from the sale of phone permits, causing a loss to the government. Reliance ADA Group officials -- Gautam Doshi, Hari Nair and Surendra Pipara -- and two promoters of D B Realty Ltd., Shahid Balwa and Vinod Goenka were also let off by the court. The charges against Essar Group promoters, Anshuman and Ravi Ruia, were also scrapped.

"This is a huge setback for BJP’s anti-corruption plank," said Arati Jerath, a New Delhi-based author and political analyst. "They have lost a major political weapon and now have to re-strategize for 2019."

There was a “huge bit of arbitrariness” in the allocation of 2G airwaves leading to a revenue loss to the government, Finance Minister Arun Jaitley said after the verdict. He added investigating agencies will decide on further course of action in the matter.

The court ruled "the spectrum sale was a notional loss and not a scam," said Mohan Guruswamy, chairman at New Delhi-based Centre for Policy Alternatives and an adviser in the previous BJP government. "It’s doubtful if the government will go for strong appeal against the judgment. Politicians don’t like to prosecute possible future allies or corporates."

The telecom scandal led India’s top court to cancel 122 licenses sold to companies, including the local joint ventures of Norway’s Telenor ASA, UAE’s Etisalat and Russia’s AFK Sistema.

Shares of companies whose officials were acquitted surged after the court verdict. Unitech closed 12.77 percent higher in Mumbai, Reliance Communications was up 3.76 percent while D B Realty surged 19.94 percent. The S&P BSE Sensex and NSE Nifty 50 Index were little changed.

©2017 Bloomberg L.P.