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India: Crony capitalism’s plunder

by Praful Bidwai, 27 October 2013

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The News (Pakistan), 26 October 2013

Last week, India’s Central Bureau of Investigation did something unusual in the coal-block allotment scam – if only because the Supreme Court goaded it. 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 Hindalco Industries to generate electricity. The blocks had been reserved for public-sector undertakings (PSUs) Neyveli Lignite Corp and Mahanadi Coalfields.

Tycoons and industry chambers came down like a ton of bricks on the CBI, defending Birla in the blind, and accusing the government of damaging investor morale amidst the economic slowdown, and attempting to scare “business out of the country”.

Parakh gave the controversy a new twist by claiming the allotment was fully justified, and that he had himself dropped his opposition to it once he “found merit” in it. He also said that if the CBI suspects a conspiracy, it should logically make Prime Minister Manmohan Singh a party too because he approved the decision as the then minister for coal.

As it turns out, Parakh’s account isn’t correct. Nor is his credibility very high: after retirement in 2005, he joined three private energy firms as a director, two of which are under investigation. As chairman of the official screening committee, Parakh opposed Hindalco’s proposal in January 2005 because the company had been allotted another block but failed to generate power for 11 years.

The committee’s decision was overturned by Manmohan Singh, no less. His office justifies the allotment as “entirely appropriate” and in the “spirit of federalism” (helping Odisha). It claims the concerned PSUs’ interests were duly “factored in”.

This is the first time that an Indian prime minister has confessed to, and taken credit for, allocating precious natural resources to private capital on an arbitrary basis. His defence of sleazy crony capitalism couldn’t have been more brazen. If this sounds harsh, consider the following.

Finite 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 private companies in the first place. India nationalised coal way back in 1973 precisely because private companies were mining coal in a ruinously irresponsible and haphazard manner, violating all considerations of environmentally sound management, while causing extensive pollution and underground fires.

The fires raging for 80 years below the Jharia coalfields in Jharkhand, which frequently break the surface and endanger life and habitation, bear testimony to this. (See http://www.bbc.co.uk/news/world-asia-india-23422068) As does the forced evacuation of Jharia and the reduction of huge swathes of land elsewhere to black deserts.

These considerations remain valid today. Indeed, they have become even more important as coal commands a high price, giving a greater incentive to private interests to mine it at breakneck speed and profiteer. There’s an urgent need to re-establish public control over coal through PSUs, which alone should be empowered to sell it to private companies.

If, in the exceptional case – eg lack of supplies to remote locations – a few blocks are to be allotted to private companies for a limited period, this must be done on the basis of stringent techno-economic and environmental scrutiny and through competitive bidding

The government does just the opposite. Mining is a state subject. Under the system prevalent since 1993, the states send recommendations to a central screening committee, composed mainly of bureaucrats. The committee-approved list is then sent back to the states for issuing leases. The process totally lacks transparency and criteria to ensure that favoured companies are not showered with largesse. It seems tailored to reward rent-seekers who buy coal blocks only to sell them at a high premium.

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

Such semi-criminalised crony capitalism has prevailed since the days of the National Democratic Alliance in respect of land, minerals, radio frequencies, water, even rivers. So the Bharatiya Janata Party is hypocritical when it selectively attacks the United Progressive Alliance.

However, the UPA carried coal block cronyism to new heights by formally instituting the screening committee in 2006 and allotting 146 blocks. This delivered Rs 1,067,303 crores in ‘windfall gains’ to companies at public expense, according to the comptroller and auditor general.

The 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 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 policies practised in most developed European countries, and also East Asian countries which have recently industrialised rapidly, such as South Korea and Taiwan, not to speak of China, with its huge state sector. These policies 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 engines 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 our part of the world, rules are either non-existent or manipulated to shower favours on individual companies.

For instance, the entire process of allotting telecom circle licences to private operators in 2006 against licence-fee bids 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?

Second, 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, came after 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 disastrous. Crony capitalism, with the economic slowdown, can only aggravate them.

The writer, a former newspaper editor, is a researcher and rights activist based in Delhi.

Email: prafulbidwai1 at yahoo.co.in

P.S.

The above article from The News is reproduced here for educational and non commercial use