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Coal-gate - Economic reforms to economic deforms?

By M R Venkatesh
September 03, 2012 11:20 IST
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Dr Singh, the architect of reforms, has in effect been the architect of this model of economic deforms. Whatever the Finance Minister Dr Singh giveth, the Prime Mnister Dr Singh taketh.

Interesting. Very interesting. One of the allottees of the coal blocks happens to be Pondicherry Industrial Promotion Development and    Investment Corporation Limited (PIPDIC). Readers may note that PIPDIC was set up by the Government of Puducherry in 1974 with the twin objective of promoting the Industrial Development of Puducherry and providing financial assistance to entrepreneurs. Surely coal does not figure in all these.  

But yet inexplicably PIPDIC was one of those to whom Naini Coal Block in Orissa was allotted by the Coal Ministry on 25th July 2007. What has PIPDIC - a Puducherry Government sponsored finance institution to help entrepreneurs got to do with coal is beyond my comprehension. Yet it got coal allotted by the Government of India.

Interestingly the Coal Mines (Nationalisation) Act 1973 allows captive mining in certain cases. This policy obviously includes those who require coal - viz., power plants, cement and iron and steel plants. But where does PIPDIC figures into all these?

But that is not all. Coal allotted to PIPDIC was in turn sub-allotted to J R Power Gen (P) Limited. This is where things get murkier. Promoters of J R Power Gen (P) Limited in turn have already sold 51 per cent of their holdings to KSK Energy Ventures. According to some reliable sources 49 per cent balance too are on offer.

It is a remarkable coincidence that the director of J R Power Gen (P) Limited happens to be a son of a prominent minister of UPA from Tamil Nadu! One does not need be a seer to figure out a shell company - in this case J R Power Gen (P) Limited would have got exorbitant premium for the shares so transferred.

Well why do I call this a shell company? The answer is simple. The Coal Ministry is reported to have issued notice as late as May 10th 2012 to PIPDIC - the original allottee and after five years of allotment of coal blocks - stating it has "not made serious efforts to develop the coal block even after repeated assurances."

It is also noted  "that all important milestones such as grant of previous approval, mining plan, environment management plan, mining lease, forest clearance and land acquisition are pending." [Source Business Standard May 10, 2012].

Further, according to documents available the said company had also entered into an MOU with Orissa Government in April 2010 for setting up a power plant of 1980 MW for an investment aggregating to Rs 7,988.90 crores. Again this MOU entered into by 2010 must be sham for the coal mines were not yet ready for exploitation even two years later i.e. in 2012 as explained above. 

What unites Puducherry  as well as Orissa Governments, J R Power Gen and coal allotments? Is it an MP from that Union Territory who is also a minister at PMO? Your guess is as good as mine.

Whatever be it welcome to Coal Gate - which is yet another saga of loot and scoot in India!

Well doesn't all this resemble the 2G spectrum scam where real estate companies, which could not have otherwise qualified for spectrum, got spectrum in 2008 that too in 2001 prices and immediately diluted the promoters' stake for a huge premium?

Coal-gate - a by product of administrative lapse

The sum and substance of the CAG report is that Coal-Gate as it is popularly referred - is by and large a by-product of administrative lapses and lack of transparency. Much as I am tempted to comment on the numbers, as a Chartered Accountant, I am consciously not referring to the possible gain to private parties as highlighted by the CAG.

This is for the simple reason when it comes to valuation no two accountants can ever agree and for that matter, even on the methodology adopted. But on matters of administrative lapses and lack of transparency there cannot be any different views. These are binary. Either there are administrative lapses or there are no lapses.

Further, it may be noted that the CAG is an institution thought out by our founding fathers to audit the functioning of the government. And when this auditor - a Constitutional Body - points out administrative lapses and lack of transparency in the functioning of the government, and hence a possible loss to exchequer, it is no laughing matter.

Consequently, while one can ceaselessly debate on the numbers I must hasten to add that the fact of the matter is that administrative lapses coupled with lack of transparency has led to substantial gain to such allottees. In this connection one is compelled to draw the attention to the reader to the following in observations in the CAG report:

In all, since July 2004, 142 Coal Blocks were allocated to various Parties. This allocation lacked transparency and Objectivity. [Para 4.2] And this, in my opinion, is the crux of the issue.

Since there is substantial difference between price of coal supplied by Coal India and coal produced through captive mining, there is a "windfall gain" to the person who is allotted a captive block. [Para 4.2] In effect, the lack of transparency and objectivity referred to by the CAG is the cause, the windfall gain the effect.

The inordinate delay of the Ministry of Law & Justice to amend the MMDR Act in order to facilitate auctions and competitive bidding of coal mines added to this mess. [Para 4.2].

What is interesting to note here is that the MoC had precisely attempted to introduce transparency / competition in the allocation of Coal blocks a few years back [Para 4.3]. In fact the CAG in turn quotes the judgement of the Hon'ble SC on the 2G matter to buttress its arguments in allowing auction as the preferred route.

The arguments that such allocation was done in the overall public interest falls flat when the CAG report points out that the out of the 86 such coal blocks which were to produce 73 MT of coal during 2010-11 only 34.64 MT of coal were produced during 2010-11 [Para 5.2].

What Next?

What has been witnessed on Coal Gate till date is a trailer of a C grade Bollywood movie. The main picture is yet to arrive. Yet there are tell tale signs that Coal-Gate is conclusive evidence of calibrated loot flourishing in India under UPA. What else would explain why Ministers write letters to the Prime Minister seeking his direct intervention on allocation of Coal Blocks in which their relatives are interested?

Obviously this is a classical case of crony capitalism, corruption and command economy in operation. Everyone everywhere is party to the loot - the State Government, the Central Government and possibly as I demonstrated - even governments in Union Territories. That implies bureaucracy, politicians, businessmen and even sections of our media at every level has been geared to this economic model.

The CAG report demonstrates how allottees are unable to mine coal even after getting the allocation. In this connection one is reminded of the erstwhile License - Permit Raj of the pre-liberalisation era where one would get licenses merely to sell it or in the alternative prevent a competitor from acquiring one. And we thought we have travelled long since then!

It was such myopic policies that ensured India stagnated and strangulated from within for four decades after independence. Under PM Dr Singh, strangely such policies have made a silent yet powerful re-appearance.

Let me hasten to add in these troubled times coal and spectrum allocation to cronies by bending rules are not exceptions in the post liberalisation era. Route permits for buses at the state level are examples of distorted economic management in India as much as choice of routes, timing and operation of flights by the civil aviation ministry.

In both cases the respective government works to sabotage state run carriers, distort or eliminate competition and in the process ensure people with high connections earn exorbitant profits at the cost of others.

Yet Dr Singh the economist and architect of reforms has done precious little to address the situation. 

And for all these policy disarray Dr Singh cannot, in my considered opinion, escape the charge of being willy-nilly party to this mess if not the loot. As a PM, by merely refusing to address the extant situation, stem the rot and remedy the same, Dr. Singh has now emerged as a singular impediment to economic growth in India.

Consequently, the devastating economic model of "cash and carry" only flourishes in India.

As the national clamours and seeks more economic reforms implying elimination of discretion, state intervention and favoured allotments, thanks to Dr Singh and his idea of economic management we have "Economic Deforms" in its stead where we have more of discretion, allotment and state intervention - a return to pre 1991 days of economic management.

In short, Dr Singh, the architect of reforms, has in effect been the architect of this model of economic deforms. Whatever the Finance Minister Dr Singh giveth, the Prime Mnister Dr Singh taketh.

It is time for deepening economic reforms. It is time for eliminating such incapacitating policies. It is time for India to grow and effectuate her tryst with destiny. And for that to happen it is time for Dr Singh the deformer to go.

The author is a Chennai-based Chartered Accountant. He can be contacted at

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