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Wednesday, 27 August 2014 00:00
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Auctions are best, don’t have to involve cash outgo

Though the banning of iron ore mining in various states—as a result, production is down from 226 million tonnes in FY10 to a likely 137 million tonnes this year—is quite different from the Supreme Court’s decision to declare all coal mine allocations since 1993 as illegal, what is common is that they both give India the chance to bring in transparency in the allocation of natural resources. While the A Raja licence allocation in 2008 was a clear aberration, by and large, the process of allocating telecom spectrum has been non-controversial in India precisely because the principle of auctions has been accepted. So, if the same process of auctions is now adopted in areas like coal and iron ore, chances are this will bring in the much-needed transparency into the sector—as the telecom example shows, any firm that gets a license in a non-transparent manner is in danger of having it revoked at any point.

Which is why the Supreme Court judgment in the coal sector has to be welcomed, not feared. That said, the Supreme Court will have to be careful to balance the interests of transparency with those of keeping business going. After all, as this newspaper has argued before, if an opaque screening committee process was the only one available, businesses can hardly be blamed for applying for licences through that. Perhaps the best way would be to auction all mines with the proviso that companies that have money invested in plant and machinery based on the coal mines allocated to them be given the right of first refusal in the auctions. This ensures the companies’ business does not suffer while ensuring transparency.

Auctions, many argue, will hike costs, even militate against the poor—auction real estate, the argument goes, and you can no longer have low-cost housing for the poor. This is evocative but completely untrue. It all depends upon auction design. If low-cost housing is stated as a pre-condition, those bidding will keep this in mind; the bids will be low, but the plots will be allocated in a transparent manner—in highway projects in India, with the tariffs pre-specified, the bids take this into account. Though the telecom auctions suggest bids suck out lots of money from firms, auctions don’t have to involve money either. The auctions under which Reliance won its KG Basin blocks, for instance, was about revenue-sharing with government—no production, no money for government; and no upfront payments. Auctions can also be designed, as the ones for ultra-mega power projects were, in such a manner that the lowest consumer tariff is the bid variable. In airports, while the bid is on revenue-share percentages, independent regulators fix the tariffs ... In short, there are multiple auction models that can be chosen from, it depends on what the government’s objectives are.


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