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Govt in the dock, not India Inc PDF Print E-mail
Thursday, 17 October 2013 01:11
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If there is no transparent policy to allocate natural resources, how is India Inc expected to grow?

The head of a R1.9 lakh crore conglomerate being named in an FIR by the CBI is big news, so it's not surprising that newspapers and television channels have splashed Kumar Mangalam Birla’s name across the front page/television screens ever since the CBI decided to name him in the Coalgate scam. But what is even bigger news is that it is not just Birla, other top industrialists such as Sunil Mittal are also in the CBI’s sights for similar alleged wrongdoings—if Birla is accused of influencing the then coal secretary for giving him 15% rights to a coal mine, Mittal has been accused of getting the then telecom secretary to introduce more liberal norms for getting extra spectrum. Both secretaries, needless to say, have been named by the CBI as part of its investigation into the two industrialists.

Given how there are several other top industrial houses that have been allocated mines without any transparent policy in place, it won’t be surprising if more marquee names are added to the list. When so many top names are in the limelight for the wrong reason, perhaps the problem lies in the policy—would you blame the better-off for mis-declaring their incomes when Indira Gandhi had a 97% marginal rate of taxation?

The specifics of each case are different, but a few broad points can be made even without having the kind of detailed information the CBI must obviously have had before it named the likes of Birla and Mittal in FIRs. In the case of Birla, as has been pointed out, the company’s application for a captive mine had been made way back in 1996—by Indal, which was taken over by Hindalco in 2000. If Birla had anywhere near the clout the CBI suspects he has, it should not have taken him till 2005 to get a license, and that too just a 15% share in a mine supposedly reserved for public sector companies—why a mine should be reserved for the public sector companies given their relative inefficiencies is, however, a separate discussion. And Birla’s clout , or the desire to use it, has to seriously be called into question when you keep in mind the company has got no mining permission till date while the plant for which the group had it allocated for—a R11,000 crore 360,000 tonnes aluminium plant—will be on stream next month. Though the lack of coal spells trouble for the group’s 750 MW power plant that is part of the project, the good thing is the group has got its bauxite mines and can start production there soon.

Only the naïve would say there is no corruption in allocating scarce mines or spectrum for that matter—there has been enough evidence of this in both the Raja scam as well as the Coalgate one, where fly-by-night operators were using their clout to get licenses which could be sold off at a premium later, possibly to the Birlas and Mittals.

But the larger question that the government needs to answer is how does it think serious players like Mittal and Birla are to operate? In the case of Mittal, the charge is that he, along with the minister and the secretary, got the norms relaxed for granting of extra spectrum beyond the 6.2MHz that his company already had. Well, what’s worth keeping in mind is that, though the telecom policy was put in place in 1994, it was only in 2006 that the government came out with a policy on how spectrum was to be given for firms who needed to move from 4.4MHz to 6.2 MHz! That’s how ad hoc telecom policy has been. And since the Mittal case is being relooked more than a decade after the decision was taken, surely someone needed to look at whether this policy benefited just Mittal, how little spectrum the industry has compared to global norms, how much subscriber growth rose once companies had more spectrum and how much extra revenues the government got since, as more spectrum was given, the revenue-share amounts that firms gave the government also rose.

In the case of Birla, as in the case of Mittal, if there was no alternative route put in place to get natural resources, what, according to the government, were these companies supposed to do? Had the policy for mines been that of auctions and Birla had managed to influence the secretary to allot him one on the side instead of paying the auction price—ditto for Mittal—that would be one thing. The fact, however, is that, in the case of mines, there is still no clear allocation policy. And, in the case of telecom, till very recently, the government was defending A Raja’s policy of no auctions. What is a Birla or a Mittal to do in such a stituation? In the case of telecom, considering there are R38,000 crore of penalties that have been levied on the industry, including on PSUs like BSNL and MTNL, this only confirms the problem is in government policy, not in individual industrialists.

And though it is deeply hurtful and embarrassing for industrialists like Birla and Mittal to find themselves named in FIRs—in the case of Mittal, even seeking anticipatory bail—what of the babus? At least Mittal and Birla have a bevy of expensive lawyers to represent them. How is a babu to take a decision on anything if, as in the case of Shyamal Ghosh and PC Parakh, decisions taken a decade ago are to be opened up? If there is blatant favouritism, that is one thing. But if the policy is intrinsically subjective, what is a babu to do? The only option, and we are seeing a lot of that now, is to play very safe, which means levy the maximum penalty or kick the decision up to the Cabinet wherever possible. In Bharti Airtel’s case, this meant a R650 crore fine for a business that, a decade ago, yielded R8 lakh of revenues. In Reliance’s case, this means getting the Cabinet to decide on whether or not the company should be penalised for not being able to deliver on gas it thought there was in the field, even though there is no contract explicitly linking the capex cleared by the government to a pre-determined level of output. In the case of Qualcomm, though the law insists a firm must hold 26% of the equity till the time of getting a license, the telecom ministry now wants to make sure this 26% clause cannot be interpreted to mean the entire duration of the license—you can think the babus are being obdurate but from their point, they are just being safe. After all, who wants the CBI knocking at your door a decade on?

 

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