KAAND: The License Raj Kaand TACTIC: Corner a government permission before anyone else knows it exists
THE TACTIC IN ONE PARAGRAPH The simplest form of this tactic involves identifying a regulatory approval, license, or exemption that is either newly introduced, obscurely worded, or buried in bureaucratic fine print—then securing it before competitors or the public realize its value. The key is speed: filing an application before the rule’s implications are widely understood, often with insider knowledge of how it will be interpreted. Once obtained, the permission can be monetized—sold, leased, or used to block competitors—while the regulator is still figuring out how to enforce it. The tactic thrives in systems where rules are complex, enforcement is slow, and information asymmetry is high. A 22-year-old reading this might think of spectrum auctions where bidders exploit loopholes, real estate developers securing environmental clearances before zoning laws tighten, or fintech firms obtaining RBI approvals before compliance costs rise.
HOW IT WORKS IN INDIA SPECIFICALLY This tactic is particularly effective in India due to three structural features: the density of regulatory overlap, the opacity of bureaucratic decision-making, and the judicial system’s tolerance for procedural delays. First, India’s regulatory architecture is a patchwork of central and state laws, often with gaps or contradictions. For example, the Environment Protection Act, 1986 delegates clearance powers to state-level authorities, but the National Green Tribunal Act, 2010 allows appeals to a central body—creating a window where a project can secure state approval before NGT challenges are filed. Second, bureaucratic discretion is high. Rules like the Industrial Disputes Act, 1947 or Factories Act, 1948 contain vague clauses (e.g., "public interest" or "adequate safety measures") that can be interpreted favorably for those with political or administrative access. Third, judicial backlogs mean that even if a permission is challenged, the holder can exploit it for years before a final verdict. The Companies Act, 2013 requires shareholder approval for related-party transactions, but enforcement is weak—allowing promoters to corner approvals for sweetheart deals before minority shareholders can react.
THE HISTORICAL RECORD One documented instance is the 2G spectrum scam, where telecom licenses were allegedly issued in 2008 at 2001 prices, bypassing auctions. The Comptroller and Auditor General (CAG) report (2010) noted that the Department of Telecommunications (DoT) ignored its own Telecom Regulatory Authority of India (TRAI) recommendations and allocated spectrum on a first-come-first-served basis. The mechanism: companies applied for licenses before the policy’s flaws were public, then sold stakes at inflated valuations to foreign firms. The outcome: the Supreme Court canceled 122 licenses in 2012, but by then, promoters had exited with profits, while the exchequer lost an estimated ₹1.76 lakh crore.
Another case is the Adani-Hindenburg controversy, where the Securities and Exchange Board of India (SEBI) investigated allegations that offshore entities linked to the Adani Group cornered shares in its own companies before public offerings. The SEBI interim order (2023) noted that certain entities acquired shares at prices below market value, possibly exploiting the Securities Contracts (Regulation) Rules, 1957, which allow preferential allotments without competitive bidding. The outcome: SEBI’s final report is pending, but the tactic—securing shares before regulatory scrutiny—mirrors the 2G playbook.
A third example is the Sugar Industry Licensing Scam in Maharashtra (2010-2012), where the State Cooperative Department allegedly issued licenses for new sugar mills in violation of the Essential Commodities Act, 1955. The Vijay Pandhare Committee report (2012) documented that licenses were granted to politically connected individuals before the Central Government’s 2011 notification restricting new mills. The outcome: the licenses were later canceled, but the promoters had already secured land and financing, leaving banks and farmers exposed.
THE INSTITUTIONS THAT ENABLED IT No tactic survives without institutional complicity. In the 2G case, the DoT ignored TRAI’s advice, while the Ministry of Finance failed to question the pricing. Auditors like S.R. Batliboi & Co. (EY affiliate) signed off on telecom companies’ financials without flagging the spectrum valuation issues. Banks like State Bank of India lent against these licenses as collateral, despite the regulatory risks. Rating agencies like CRISIL and ICRA assigned investment-grade ratings to telecom bonds, treating spectrum as a tangible asset. In the Adani case, SEBI’s own Investigation Division took years to act, while the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) allowed preferential allotments without sufficient disclosures. In Maharashtra’s sugar scam, the State Cooperative Department bypassed the Central Government’s restrictions, while the Maharashtra State Cooperative Bank financed the mills without due diligence. The pattern is consistent: regulators delay, auditors rubber-stamp, banks lend, and rating agencies bless.
THE CURRENT STATE This tactic is alive and well, though the instruments have evolved. The Insolvency and Bankruptcy Code (IBC), 2016 was meant to prevent asset-stripping, but promoters still corner resolution plans by exploiting the Section 29A loopholes (e.g., bidding through relatives). The Real Estate (Regulation and Development) Act, 2016 (RERA) was supposed to bring transparency, but developers still secure approvals before RERA registrations are mandatory. The RBI’s 2022 guidelines on Alternative Investment Funds (AIFs) were designed to curb evergreening, but promoters continue to use AIFs to corner shares in their own companies. The only real change is that the tactics are now more sophisticated—using shell companies, offshore structures, and digital platforms to obscure ownership. The system’s incentives remain unchanged: regulators are understaffed, enforcement is slow, and the cost of compliance is higher than the cost of evasion.
WHAT TO WATCH FOR 1. Sudden regulatory filings: If a company secures a license, exemption, or approval just before a policy change (e.g., a new RBI circular or SEBI amendment), dig into who applied and when. Was it filed months before the change was announced? 2. Preferential allotments: Check if a company issues shares to a select group at below-market prices, especially if the allottees are obscure entities. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 require justification—does it pass the smell test? 3. Bureaucratic delays: If a competitor’s project is stuck in approvals while a new entrant gets fast-tracked, ask why. The Right to Information (RTI) Act, 2005 can reveal if the process was manipulated.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.