The Comptroller & Auditor-General’s report on the presumptive loss to the exchequer in the allocation of coal blocks is being subjected to criticism all around. The Congress, which has been forced on the defensive, has made bold to assert that the CAG, Vinod Rai, had gone beyond his constitutional mandate and intervened in the domain of policy-making. As it did with the CAG report in the 2G telecom scam, it is looking to pick holes in the CAG’s methodology for arriving at the headline number (in terms of presumptive losses) and go on from there to demolish the CAG’s claim that the process of coal allocation was flawed.
The fact that this time around the allegations relate to the time when no less than the Prime Minister, Manmohan Singh, headed the Coal Ministry, has forced the government into even more of a defensive posture. And particularly since, after the draft report of the CAG came out and anti-corruption activists had tagged Manmohan Singh to the list of 15 Ministers they had wanted investigated on corruption charges, the government’s response points to a touchiness beyond the ordinary.
But it’s not just the Congress that finds problems with the CAG’s arguments that led up to its flashing the Rs 1.86 lakh crore as the notional loss in the deals. Other commentators too have pointed to the flaws in the CAG’s valuation methodology.
Writing in the Indian Express, economist Surjit Bhalla goes so far as to say that if comes to a question of trusting the CAG or the Prime Minister in a case like this, he would trust the CAG a lot less than the Prime Minister. Bhalla then systemically disassembles the CAG’s valuation methodology and claims that the “truth-to-falsehoods” ratio in CAG reports averages about 10 percent.
Such failings erode the credibility of the CAG, and lead us to conclude that it is consistently playing to the base galleries and, possibly, the Opposition parties. ”Why does the CAG make such grotesque miscalculations? Why is it allowed to make such errors?” he asks, and wonders if it is time to audit the performance of the CAG itself.
Bhalla’s point about the CAG’s valuation methodology are well taken. In fact, in March, Firstpost had pointed to the absurdity of the CAG’s original estimation (in a draft report that was leaked in March) putting the presumptive loss in the coal block allocation at a staggering Rs 10.67 lakh crore. “It seems the CAG is trying to shock with numbers that are at best guesstimates,” we had noted then.
In any case, as we had argued earlier, when it comes to allocation or auction of national resources – be they mining rights or telecom spectrum or whatever else – policy decisions cannot be judged merely on the basis of notional loss of revenue. A far more critical consideration is the policy objective: what was being sought to be achieved at that point in time. There are times when a government may opt not to auction resources (or maximise revenue) because the objective is to, say, expand the market or lower the entry barrier for private entities into areas where the state sector is ill-equipped or inadequately equipped to utilise the resources.
In that sense, the headline numbers that the CAG throws up don’t always equate to a “scam” of equivalent proportions. It is true, as Firstpost has argued earlier, that the CAG report on the 2G telecom scam – which put the notional revenue loss at Rs 1.76 lakh crore – has been more than validated by the base price that the UPA government recently set for the allocation of 2G spectrum. Even so, a monomaniacal obsession with the headline numbers is distracting.
As Sujeeth Pillai observes on the Centre Right India blog, citing a dialogue in the film Entrapment (where Sean Connery asks Catherine Zeta-Jones: What can you do with seven billion dollars that you can’t do with four?): “Does it matter whether it’s Rs 1.86 lakh crore or it’s Rs 69,000 crores or Rs 6,900 crores? The loss is what matters.”
The far more critical takeaway from the CAG report in the coal block allocation relates to the flawed process of allocating the coal blocks, and the unjust enrichment that the allottees derived (or had the potential to derive over the years). If the purpose of the coal block allocation to private parties was to enhance coal output and ensure uninterrupted supply for our thermal power plants, perhaps a notional loss of revenue from not opting for auctions would have been tolerable (if the objective had been laid out clearly and the process of allocation done in a transparent manner). But even that objective was not met.
As the CAG report points out, only 28 of the 86 captive coal blocks that were to have begun mining operations by 2011-12 did in fact begin mining. The rest were just “squatting” on their allocations.
Of course, the roots of the scandal can be traced to the “original sin” of the nationalisation of coal production in 1973 by the Indira Gandhi government. But given that the public sector had failed over the years to increase coal output to meet the increase in demand, there was a case to bring private players. But that would have required an amendment to the Coal Mines (Nationalisation) Act, which given the fact that the UPA government was in 2004 dependent on the Left parties for survival, was impossible.
It was in that context that the government resorted to the subterfuge of awarding coal blocks for captive use. But as the CAG establishes, the whole process was riddled by lack of transparency, which permitted ‘sweetheart deals’ with private players. It was, as Firstpost had observed earlier, a textbook case of crony capitalism.
Even if one discounts the CAG’s headline number for the notional loss of revenue to the exchequer, its observations in respect of the flawed processes that permitted unjust enrichment by private parties are harder to dismiss. The real scandal lies beyond the headline numbers. Far better to focus there.