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This article was first published 9 years ago  » Business » Coalgate and India's crony capitalism

Coalgate and India's crony capitalism

By Paranjoy Guha Thakurta
August 28, 2014 18:22 IST
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The Supreme Court judgment will hopefully ensure that those in power and authority will hesitate before allotting precious natural resources that belong to each and every citizen of the country in an arbitrary and corrupt manner, says Paranjoy Guha Thakurta.


A labourer smokes after loading coal onto trucks at a coal yard near Chiwaki railway station in Allahabad. Photograph: Jitendra Prakash/Reuter

Given the strong language used by the Chief Justice of India Rajendra Mal Lodha in his August 25 judgment on the coal blocks allotment scandal, popularly called Coalgate, few will be surprised if many of the 218 blocks allotted in an illegal manner are soon cancelled.

Whereas this may cause a temporary disruption in the working of critical infrastructure sectors of the Indian economy, it will also send out a powerful signal to politicians and their cronies from the world of business that the rule of the law does eventually prevail, even if the judicial process is long drawn-out and convoluted.

Justice Lodha, who headed the bench of the Supreme Court comprising Justices Madan Lokur and Kurian Joseph, categorically said the procedures followed in allotting coal blocks were not just illegal but also unfair and lacked transparency.

Consequently, "common good" and "public interest" were sacrificed during the distribution of national wealth. Resources that belong to the people of this country were given out in an arbitrary manner to companies controlled by those who were politically connected.  

Coal meets India’s critical energy needs. It is responsible for more than half the total electricity used in the country. It is crucial for the manufacture of steel, cement and many other products.

The manner in which coal mining takes place epitomises corruption and much that is wrong with the governance of India’s political economy.

In the early-1970s, the government headed by Indira Gandhi nationalised coal mining in the country in response to persistent reports of unscientific mining practices and inhuman exploitation of the workers by private miners.

Nationalisation did not, however, prevent the open flouting of laws. In order to mine more coal, richly forested areas and fertile agricultural tracts were taken over without the consent of local inhabitants who were wholly dependent on such lands and forests for their livelihoods.

In August 2012, the Comptroller and Auditor General of India revealed that "screening committees" gave out licences for mining in captive coal blocks to a number of companies in an arbitrary, non-transparent manner and enabled these firms to reap windfall gains at the expense of the exchequer. The report of the CAG claimed that the country had incurred a loss of a stupendous Rs 1.8 lakh crore or the equivalent of $ 33 billion by allocating coalfields at throwaway prices.

While the UPA government sought to trash the CAG's findings at the time they were made public, two years later, the Supreme Court has confirmed all its findings and vindicated its position.

An activist from Bharatiya Janata Yuva Morcha, wearing a cut-out of Prime Minister Manmohan Singh, lies on a heap of charcoal during a protest in New Delhi. Photograph: Adnan Abidi.

Soon after Dr Manmohan Singh became prime minister in May 2004, he recommended that coal blocks be allocated in a transparent manner through open competitive bidding in public auctions. It took nearly eight years for the government to act on his recommendations.

Various important individuals were identified who were connected with the promoters and directors of the private companies that had obtained rights to mine coal.

Such persons included many affiliated to the Congress party, including Nagpur member of Parliament and newspaper baron Vijay Darda and his brother, Maharashtra Education Minister Rajendra Darda, former MP from Kurukshetra, Haryana, Naveen Jindal and his brother-in-law, as well as former Union ministers such as Subodh Kant Sahay, one-time Union Minister for Food Processing, Prakash Jaiswal, former Minister of State for Coal and Santosh Bagrodia, former Minister of State for Coal. Others included S Jagathrakshakan of the Dravida Munnetra Kazhagam, who was former minister of state for information and broadcasting.

Among the beneficiaries was a company associated with Rajya Sabha member of Parliament belonging to the Bharatiya Janata Party Ajay Sancheti who is close to Union Minister for Road Transport and Highways and former party president Nitin Gadkari.


Labourers load coal on trucks at Bari Brahamina on the outskirts of Jammu. Photograph: Mukesh Gupta/Reuters

A number of companies that were granted leases for captive coal blocks apparently had little or nothing to do with producing power, steel or cement. Some of these firms were manufacturing chewing tobacco and compact discs!

The Coalgate scandal took a sudden and dramatic turn in April 2013. The Supreme Court castigated the Central Bureau of Investigation for showing the status report on its investigation to the political executive despite claims to the contrary by the top law officers of the government.

Media reports disclosed that the Union Law minister Ashwani Kumar had called CBI director Ranjit Sinha to his office. Together with officers in the ministry of coal and the Prime Minister’s Office, they made changes to the status report of the CBI on its investigations into the scandal.

According to the Supreme Court of India the heart of the report was altered. The judges described the representatives of the CBI as "caged parrots".

A fallout of the apex court's observations was the resignation of the then Additional Solicitor-General of India Harin Raval, one of the highest law officers in the country. He had earlier written to the then highest law officer in the country, Attorney-General Goolam Vahanvati, that an attempt was being made to make him a scapegoat as he had told the Supreme Court that the CBI's report had not been seen by the political executive.

Former Law Minister Ashwani Kumar liked flaunting his proximity to both Manmohan Singh and the Gandhi family. Photograph: Mohammed Jaffer/SnapsIndia

Harin Raval submitted his resignation to the then Law Minister Ashwani Kumar (left) who thereafter himself resigned from his post in May 2013.

Even as the government has opened coal mining to the private sector, it has failed to put in place a statutory regulatory authority.

The Coalgate scandal will not disappear in a hurry. Its impact will be felt on the country's economy for quite some time to come.

Despite holding substantial reserves of coal, albeit of relatively poor quality, the country has been importing between 20 per cent and 25 per cent of its total requirements in recent years. This trend will not be reversed in a hurry.

Nevertheless, what the Supreme Court judgment will hopefully achieve is to ensure that those in power and authority will hesitate before allotting precious natural resources that belong to each and every citizen of the country in an arbitrary and corrupt manner.

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