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When cronies plunder scarce resources

October 25, 2013 17:02 IST

Crony capitalism will of course generate investment and ensure profit for private capital, but it won’t give employment or income to the people. If you can make money by selling coal or speculating in land, why produce electricity, why invest in research and development, why even set up factories, asks Praful Bidwai.

On October 15, the Central Bureau of Investigation did something unusual in the coal block allotment scam -- if only under the Supreme Court’s goading. It filed a First Information Report against top industrialist Kumar Mangalam Birla and former coal secretary PC Parakh for illegally allotting two coal blocks in Odisha in 2005 to the Aditya Birla group-owned Hindalco Industries to generate electricity.

The blocks, Talabira-II and Bijahan, had been exclusively earmarked for public sector undertakings Neyveli Lignite Corp and Mahanadi Coalfields.

As expected, tycoons and chambers of industry came down like a tonne of bricks on the CBI, defending Birla in the blind, and accusing the government of further damaging investor morale amidst the economic slowdown. Even Housing Development Finance Corporation chairman Deepak Parekh, once considered the conscience-keeper of Big Business, declared Birla “clean as a whistle” and the FIR a “shameful” attempt to scare “business out of the country”.

Parakh claims that the allotment to Hindalco was fully justified, and that he himself dropped his opposition to it once he “found merit” in its case. He also said that if the CBI suspects a conspiracy, it should logically make Prime Minister Manmohan Singh a party too because he signed off on the decision as the then minister for coal.

Parakh undoubtedly resisted pressure from Coal Minister Shibu Soren in 2004-5 and candidly wrote: ‘The coal mafia is not outside the government. It exists in the coal ministry…’ Nevertheless, after retiring in 2005, he controversially joined three private energy firms as a director, two of which are now being investigated by the CBI.

More pertinently, however, as chairman of the official screening committee which examined Hindalco’s case, Parakh opposed allotment to the company because it had been given another coal block but failed to generate the promised power for 11 years. 

In fact, the committee’s decision, taken at its 25th meeting in January 2005, was overturned by Dr Manmohan Singh, no less. The Prime Minister’s Office justifies the allotment to Hindalco as “entirely appropriate”, “based on merit” and in the “spirit of federalism” (helping Odisha). It dismisses the charge that it adversely affects any PSUs and claims their interests were duly “factored in”. It has further disclosed that it recommended that Hindalco’s share of the block’s coal be raised. 

This is the first time that an Indian prime minister has confessed to, and indeed taken credit for, being a party to the allocation of precious natural resources to private capital on a wholly arbitrary and whimsical basis. This defence of crude, sleazy crony capitalism couldn’t have been more brazen and offensive to the public interest. If this sounds harsh, consider the following.  

Finite and fast-depleting natural resources like coal, which India now imports from faraway Australia and Indonesia at an exorbitant cost, should not be given over to the private sector in the first place. Coal, barring that in the captive mines of Tata Steel and IISCO, was nationalised in India way back in 1973 precisely because private companies were mining coal in a ruinously irresponsible and haphazard manner, throwing all considerations of environmentally sound management to the winds, while dumping waste everywhere and causing extensive pollution and underground fires.

The fires raging for the last 80 years below vast tracts of the Jharia coalfields in Jhrkhand, which frequently break the surface and endanger life and habitation even today, bear testimony to this. As does the forced evacuation of Jharia and the reduction of huge swathes of land elsewhere to black deserts where nothing may grow.  

These considerations remain valid today. Indeed, they have become even more important as coal becomes scarce and commands a high price, thus giving a greater incentive to private interests to mine it at breakneck speed and profiteer. Scores of companies have brought about effective denationalisation of coal by obtaining captive coal blocks ostensibly for power generation.

There’s an urgent need to stop and reverse this, and strongly re-establish public control over coal through PSUs, which alone should be empowered to sell coal to private power companies. In any case, there is no justification whatsoever for captive coal mines.

If, in the exceptional case -- such as lack of assured supplies to remote locations -- a few blocks are to be allotted to private companies for a limited period, sound economics dictates that this must be done on the basis of stringent technical, economic and environmental scrutiny and through competitive bidding and auctions, where the highest bidder wins.

However, the government has done just the opposite. Since mining is a state subject, only the states can sign mining leases. But under the system that has come to prevail since 1993, the states send a list of recommendations to a central screening committee, composed mainly of bureaucrats. The committee (mostly) approves the list, which is then sent back to the states for issuing leases.

There is no transparency in the process, and no clear criteria are followed to ensure that certain favoured companies, which wield influence, are not showered with largesse. The procedure seems tailored to reward rent-seekers who lack the remotest acquaintance with coal mining and who buy coal blocks only to sell them (or coal) at a high premium.

Thus a scarce resource is parcelled out to private buccaneers through collusion with politicians and bureaucrats. The government has even washed its hands of its responsibility to generate income, saying it “did not reckon [coal block allotment] as a revenue generating exercise”, but as inducement to “rapid development of infrastructure… essential to keep the economy on high growth trajectory, by involving the private sector to … create additional capacities.”

Such crony capitalism has prevailed since the days of the National Democratic Alliance in respect of a host of natural resources, including land, minerals, radio frequencies, water, even rivers. So the Bharatiya Janata Party is hypocritical when it selectively attacks the United Progressive Alliance. Between 1993 and June 2004, as many as 93 blocks were allotted thus.

However, the UPA carried coal block cronyism to new heights in 2006 by formally instituting “administrative instructions” through the screening committee and allotting 146 blocks, thus delivering Rs 1,067,303 crores in “windfall gains” to various companies at the expense of the public, according to the Comptroller and Auditor General. This is much greater than the 2G scam loss.

The whole history of such arbitrary allocation of scarce natural resources reveals an important truth about India’s neoliberal economic policy. Contrary to official claims, this is not market-led, but business-led, as Princeton-based political scientist Atul Kohli has persuasively argued. India’s industrial policy is designed and calculated to favour specific business houses. Cronyism and sleaze are built into its very heart, and a certain kind of criminality is inseparable from it.

Indian neoliberalism stands in contrast to the economic policies practised in most developed European countries, and also East Asian countries which have industrialised rapidly, such as South Korea and Taiwan, not to speak of China, with its huge state sector. These relied on “governing the market”, not capitulating to it, on directing investment, not leaving it to private capital.

PSUs and investment by public financial institutions were the main engine of growth in East Asia. Its state disciplined private capital, it didn’t pamper it. Industrial policy was based on rules and relatively transparent processes. In India, rules are either non-existent or manipulated to shower favours on individual companies.

For instance, the entire process of allotting telecom circles to private operators in 2006 against bids for licence fees was suddenly abandoned when these investors realised they had vastly overbid: their fees were three times higher than their likely income! So they were allowed to “migrate” from licence fees to “revenue-sharing” -- at the expense of the telecom PSUs, which are now bleeding. 

If you are a Narendra Modi crony in Gujarat, you get land at throwaway prices, your taxes are written off for 15 years and subsidies finance 60 percent of your investment, as with the Tatas’ Nano car project, the Adanis’ port at Mundra, and Essar Steel’s plant. These giveaways have been valued at more than Rs 1,00,000 crores!

Crony capitalism will of course generate investment and ensure profit for private capital, but it won’t give employment or income to the people. If you can make money by selling coal or speculating in land, why produce electricity, why invest in research and development, why even set up factories?

Secondly, Indian neoliberalism is being practised in a socio-economic context of extreme poverty and widespread deprivation, with abysmally low investment in the social infrastructure, including healthcare, education, food security, safe drinking water, sanitation and social security. We are privatising many services before people have access to them.

By contrast, privatisation in Europe and East Asia, while regrettable, followed decades of high social indices and public investment in quality healthcare, education, housing and social protection against unemployment.

Neoliberalism’s socio-economic effects in India have been deplorably unhealthy. Crony capitalism, with the economic slowdown, can only make them worse.

Image courtesy: Ajay Verma/Reuters

Praful Bidwai