India’s polity is a fine example of the modern governmental system modelled on the principle of trias politica, commonly called as the ‘separation of powers’ where each branch, the legislature, executive and the judiciary, hold distinct powers and areas of responsibility.  The role of the executive is to oversee the administration of the state. The fact that an executive is elected provides it the mandate to make policy choices. Allocation of natural resources is a policy decision-a task which falls exclusively in the executives’ basket. It is beyond the judiciary’s privilege to prescribe or proscribe means for taking such policy decisions or conducting an exercise to determine which public policy is wiser than the other.

However, this does not mean that the executive can act on its own whims and fancies, no matter how unreasonable or arbitrary. The judiciary is entrusted with the power of judicial review under which the executives’ actions are subject to review and possible invalidation if it finds them incompatible with the terms of the Constitution. Hence, the decision taken by the executive has to be within the parameters of judicial review and if the government’s policy is challenged legally on grounds of criminality or arbitrariness, violating the constitutional or statutory provisions, “the courts are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are ultra vires and intra vires the provisions of the Constitution.”

In keeping within the acceptable scope of judicial review, the Supreme Court recently undertook the judicial scrutiny of permissible method of allotment of natural resources in its advisory opinion on the ‘2G Presidential Reference’ matter.  The honourable Court clarified that a policy cannot be invalidated on constitutional grounds merely because it seems inherently abusive without perpetrating an actual damage. The test of constitutionality will be applied only if an actual perversion is proved.

Having elucidated this, the Court has rightly opined that auction as a mode of allocating natural resources cannot be crowned with the status of being a ‘constitutional principle’.  Methods other than auction cannot be struck down as ultra vires the constitution, simply because they don’t seem befitting.

The view taken by the Supreme Court is quite contrary to the widespread misinterpretation that the 2G judgment laid down a one-size-fit-all rule that auction was the ‘only’ route for alloting natural resources. The Court further clarified that these were not blanket generalisations for disposal of natural resources but it merely evaluated the validity of the method adopted in the distribution of spectrum. So, the widely popular misbelief that the allotment of 2G spectrum on a first-cum-first-serve basis is knocked by Article 14 is indeed flawed.

The court highlighted that the policy decisions should be taken in the interest and well-being of the society. India is a social welfare state, signifying a regime which renders social service to the people and promotes their general welfare. This also implies efficient administration, speedy justice, freedom from frustrating complexities of graft, corruption, sloth, inefficiency, red tape and much more. The primary concern of a state is maximum happiness of maximum number of people within its territory. Maximization of revenue is subservient.  Therefore, common good is the touchstone on which any policy decision should be taken. If scarce and precious natural resources are disposed off for “commercial pursuits of profit maximization of private entrepreneurs” and for financial gains, adoption of such means will be slapped by the constitutional command of Right to Equality.

The Court seems to take the view that social welfare and commercial pursuits of profit maximisation are inconsistent with each other, if not absolutely contrary. For the common man, this may not be surprising but for the economists, who may get their knickers in a twist over the court’s observation, have reason to be anguished.

One of the most famous concepts in economics is that of the ‘Invisible Hand’ from Adam Smith’s Wealth of Nations which states that,

“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.” Simply put, the father of modern economics maintains that an individuals’ effort to maximize their own gains in a free market benefits the society, even if the ambitious have no benevolent intentions. It is only through “commercial pursuits of profit maximization” that social welfare can be achieved.

In order to maximize profits, the businesses will put the natural resources to use in the most efficient manner, leading to maximum productivity which will in turn churn out more goods and services, increase consumer satisfaction and create employment. Will this not be social welfare? Moreover, Adam Smith also says that by trying to maximize his own gain, “every individual necessarily labours to render the annual revenue of the society as great as he can”. Is this not the revenue maximization the court is talking about?

Of course, it is nobody’s argument that the government should dissipate natural resources in the form of charity. Instead, the best way to allocate natural resources will be through some form of competitive bidding, allowing the prices to be set by the market forces. Auction or one of its variants seem to be the best suited route as it is most economic and leads to minimum arbitrariness. On this point, the Supreme Court has however noticed, “Auctions may be the best way of maximizing revenue, but revenue maximization may not always be the best way to sub serve public good”

One wonders, why is then the popular perception about profit-maximization associated with customer distress and incoherent with the concepts taught by economists? Perhaps it is because reality has a way of sneaking up and giving a bite. Reality is indeed very different from textbook economics. In today’s times, it would be quite a stretch to argue that the behaviour of profit-maximizing businesses has been perfectly aligned with the welfare of their people and their economies.

The enormous constitutional clarity provided by the Supreme Court on the allocation of natural resources is welcomed. This opinion is really a victory for the Indian judiciary which has handled a critical matter with several nuances in a judicially proper way.  For now, the most the opinion can do is provide UPA a little bit of oxygen supply in what seems like a long and daunting run ahead.