Coalgate: FIR against KM Birla is a body blow to corporate India

The parrot is back in its cage, regurgitating its master’s complete nonsense. Let there be no doubt who the master is. He is Prime Minister Manmohan Singh, who also doubles up as the Cabinet Minister of Personnel, the CBI’s reporting authority. The case is Coalgate. The latest victims of the CBI’s Manmohan-inspired nonsense are former coal secretary PC Parakh and one of India’s best known industrialists Kumar Mangalam Birla, both of whom now face the possibility of being jailed (the CBI has filed FIRs against them) for their alleged part in a scam whose apparent ringleader, the then Coal Minister Manmohan Singh, is now playing investigator.

Beyond individuals, the CBI’s latest move threatens to unleash a second coming of policy paralysis and investor-fright, which could send economic growth tumbling further, from sub 5 percent to sub 3 percent. Manmohan Singh has clearly not learnt his lessons from the two years of paralysis that followed the roughshod investigations into the 2G scam, which sent to jail not just a minister and a secretary to government but also several businessmen and CEOs. Otherwise, he would not have permitted the CBI to perform its most recent overkill.

PC Parakh, the former Coal Secretary who the CBI now accuses of playing a part in orchestrating Coalgate, was the only senior policy mandarin who actually tried to prevent the scam, proactively. As the top bureaucrat in the Coal Ministry in 2004, he wrote a note recommending the abolition of discretionary allocations of coal mines and a shift to competitive bidding. He even suggested that the change in policy required only executive action and no passage of legislation. His boss, Coal Minister Manmohan Singh, sent Parakh’s opinion to the Law ministry which expressed two contradictory views: that an executive order was okay and that an amendment to existing legislation was necessary to put the new policy on a sound footing.

Manmohan Singh’s government opted to delay the changeover to auctions by opting for the legislative route. By the time legislation was amended in UPA 2, the scam had taken place. It was Manmohan Singh, and not PC Parakh, who held the reins of the Coal Ministry for a period of over three years in UPA 1 - and the period in which most of the contentious allocations were made. Parakh retired in 2005. The retired Coal secretary is well within reason to argue that if anyone should be charged, it should be the minister who signed off on the files. After all, if a minister believes his secretary is wrong, he has every right to overrule it. Manmohan Singh overruled Parakh on auctions, but did nothing to overrule the post-Parakh scam machinations that happened under his watch. Logic demands that if Parakh is under suspicion, so should Manmohan Singh. At least in 2G, the CBI was consistent in arresting both the minister and his secretary who had signed on the controversial decisions.

It is equally outrageous to file a FIR against Kumar Birla. Birla is only the non-executive chairman of Hindalco the company the CBI is accusing of manipulating the allocations process. If he is to be held accountable for the company’s actions, then why not Manmohan Singh who was the executive head of the ministry when tens of coal blocks were allocated controversially?

In any case, the CBI’s case against Hindalco is hardly watertight. The case against Birla rests on a meeting he had with then Coal Secretary Parakh in mid-2005 after which the CBI claims the Coal Ministry changed the decision of its screening committee to allocate a coal block with an estimated 153 million tonnes of reserves in Orissa solely to two PSUs Neyveli Lignite and Mahanadi Coalfields. It is alleged that Birla persuaded Parakh to accommodate Hindalco. The truth, according to Hindalco MD Debu Bhattacharya, is that the block was allocated to the two PSUs and Hindalco took a 15 percent stake in the joint venture between the two PSUs. Far from a last minute entrant, Hindalco had entered the process in 2000 when it acquired Indal, the firm which had first bid for the Orissa block in 1996.

The naming of Birla as an accused is different from the earlier FIRs against Naveen Jindal and Vijay Darda who double up as Congress MPs along with their business interests. In the cases of Jindal and Darda, the possibility of crony capitalism lurks all the time, except that it makes little sense to charge the capitalist without charging his cronies. Birla, on the other hand, is highly regarded as a capitalist who inherited an empire when he was just 28, and expanded it several times over (in a highly competitive post-liberalisation environment). A significant portion of his business is overseas - the AV Birla group is a multinational company - and success outside India, particularly in the advanced economies, cannot be attributed to cronyism.

The naming of Birla in an FIR is, therefore, a body blow to those entrepreneurs who have risen not through cronyism but on their own merit. Suddenly, India has become an even more uncertain place to do business. Similarly, the allegations against Parakh are a body blow to bureaucrats who try to do their jobs honestly. It seems that politicians, even allegedly decent ones like Manmohan Singh, will not hesitate to crucify them in order to save their own skins.

There remains only one question worth asking: When will Manmohan Singh be hauled over the coals for his dubious role in the enactment of Coalgate and the witch-hunt that has been unleashed by his favourite bird yesterday? India Inc and India’s babus may want to wait for an answer before they start working again.