Wednesday, November 24, 2010

2G scam followup: True opportunity cost of misallocating scarce resources

Please see the most recent post for the preliminary analysis of this scam. This is a follow up tab posting. Per this article on rediff.com:

" .. The Comptroller & Auditor General has calculated in his official report that the exchequer lost the truly mind-boggling sum of Rs 176,645 crore (Rs 176.64 billion) .. "

So in case there was any well-intentioned doubt that the 1.76*10^12 number was cooked up, it is now very clear that this number is (sadly) official. Actually, i would expect the number to be even higher, when you compare the true opportunity cost (due to a miserably and deliberately bad mis-allocation) relative to the value of optimal allocation.

When we read about scams like this, we realize how important it is that solid OR models be built to perform exploratory studies and simulations be run prior to allocating almost priceless resources. The supreme court of India said that "the 2G scam puts all other scams [in the history of India] to shame". When so many in India are dying of starvation and are homeless, such giga-squandering of public money by a corrupt government is nothing short of a 'monetary holocaust'.

It must be made mandatory for governments and public organizations at any level to conduct an appropriate OR analysis before allocating any scarce resource that belongs to the public. If the government of India had funded an OR group to spent a exaggerated and gigantic (or microscopic if u compare with the final loss) sum of 10 million $ for an OR analytical study, it would have paid for itself many, many times over. Well-run OR projects typically cost much less while providing incredibly impressive value measured in terms of incremental-benefit/project-cost return ratios (read the Woolsey papers for more on this).

Side note
Statistically, #barkhagate is turning out to be the most continually tweeted phrase in virtual India. Ever. It is trending so hot, you can make a virtual omelet there. Social media is making its presence felt in a very real way wrt real world issues in the largest democracy in the world, and consequently, the manipulative mainstream English media in India that had previously closed ranks on this topic so far, is now being forced to cover this critical news.

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