Friday, June 1, 2012

As policies evolve, old ones cannot be called corrupt…..

A TV anchor was building his case against the UPA government as he does virtually on every day by claiming that there were too many similarities between the 2G “scam” and now “Coalgate”. In his wise opinion (?), the government was corrupt in both cases since in both cases the earlier policy was changed (in 3G in telecom) or proposed to be changed (in coal mining) by the government, and hence – his intelligent argument went – this is proof that there “must have been” corruption earlier. Such a joker would be very funny if he was performing in a birthday party or as a stand-up comedian on TV, but as the anchor of a major news TV channel, he should be considered to be an element dangerous to our democracy.

To explain the subject matter of this post, let me take the example of the fuel subsidy that the government has been giving forever. Take diesel subsidy….at present some Rs 15 per litre or so. Let’s say, this comes to Rs 1 lac crore per annum. The government has been discussing for many years now (but lets say only since 2011) that even diesel should be de-regulated, and its prices should be determined by the oilcos themselves. Within the government, there are ministers who feel diesel should be de-regulated (say Jairam Ramesh, Pranab Mukherjee, the PM etc) and those who feel it should still be regulated (say the rest of the pack including the Congress President Sonia Gandhi). Every three months, they have discussions on this subject. Often, the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, as well as the Secretaries of various ministries including finance, transport, commerce and others have joined the discussion and expressed their views on the subject. Again, some believe diesel pricing should be freed up; some think otherwise. All said that there were no legal limitationsno need for a new law or an amendment to an existing one – to freeing up diesel pricing. The PM finally expresses his views that he believes diesel prices should be de-regulated, but political “compulsions”, the proximity of certain important political events, the reality of certain state elections on the horizon compel the government to do nothing about freeing up diesel pricing. For another four years, the pricing continues to be regulated and highly subsidized. Eventually (say in 2015), the government frees up the pricing. This is the background to the points I want to make regarding both 2G and Coalgate:

1)    Merely because the government has discussed freeing up diesel pricing in the past does not make the act of providing subsidies thereafter as corrupt. One cannot argue in 2015 that “See, the government discussed freeing up diesel pricing in 2011. Why did they not do it then? Surely, this is a sign of corruption”.
2)    The fact that different ministers had different points of view does not mean that the one who took the final call – say the PM – is corrupt. If that were the case, then what one is effectively saying is that if there is a difference of opinions within the government, the government should take the most conservative cover-your-ass decision. It should keep one eye on the wise anchor on this TV channel, another on the CAG, a 3rd on the Supreme Court, a 4th on the opposition, and then decide which decision will draw the least ire. In effect, a political decision such as freeing up diesel pricing would be taken by a concoction of unelected wise men in media, the auditor and the judiciary. Why have political parties then? Why not just let these wise men run the country?
3)    The fact that certain secretaries to the government were involved in discussions, and felt that diesel pricing should be freed up – without looking at the political or legal environment – does not make the government is corrupt. At the end of the day, the secretary is just that…..a secretary. The secretary cannot take political decisions. The secretary only brings a rational point of view forward; not a political one. Ultimately, all decisions are political decisions. Diesel pricing is a political decision. One party may decide to free it up (I cannot think of any party right now!); another one may decide to increase the subsidies on it. If decision making were to be taken purely on rational grounds, then we would be talking of the private sector, not the government.
4)    The government eventually frees up petrol pricing (not diesel) and the prices climb up to Rs 80 per litre. This “conserves” (stanches losses) of the government to the extent of Rs 50,000 crores per annum (say). This does not mean that petrol pricing earlier was a “scam”. Nor that diesel pricing today is a “scam”. Trust media to brand it “dieselgate” or some such inane thing! The government moves in baby steps, tests the political waters, and then decides whether to push forward or backtrack. If it can handle the political fall-out, it will try to increase diesel pricing a small bit and again test the waters; if it works, it will be encouraged to continue; else it will beat a hasty retreat. This is politics, not rationality. But this cannot be called corruption.

Let’s now come to the 2G and Coalgate “scams”. I always put the word scam in quotes, because I don’t think they were scams at all. 2G certainly was not. Yes, it looks like there was corruption that Raja indulged in, but the rest of it was just a policy that evolved with 3G. Likewise, Coalgate is mostly a policy matter, which is now evolving.

In 2G, the older regime was to give spectrum cheap. It doesn’t matter than post-3G auctions, this older policy looks odd. But that same older policy was followed by both NDA and UPA right until 2008. Just around then, the government tested waters with 3G auctions and found that it gave it great results. In fact, it got praise from one and all. It helped it contain the fiscal deficit. But it increased 3G pricing drastically. The 3G business is all but finished. Telecom operators have lost money hand over fist (their own fault!). 3G penetration is one-tenth of what their plans were. The government’s objective of high broadband penetration has not been met. The success with 3G was only financial; not social. Clearly, neither should the 3G experience compel the government (or the Supreme Court which has no expertise in economic matters) to auction 2G airwaves (since it doesn’t want penetration to fall and prices to rise), nor should it be inferred that the no-auctions earlier policy was corrupt. What were corrupt (if proven) were Raja’s shenanigans and that is what the court should restrict itself to.

In Coalgate, the fact that the UPA first considered auctioning coal blocks, later felt that legislative reforms were required…..the fact that the Coal Secretary felt that legislative reforms were not required….the decision got delayed by many years…..etc etc does not prove that earlier policies were corrupt. The earlier policy of “allocations” rather than auctions was followed since independence, including by the happy-to-claim-high-moral-ground BJP. In fact, one can argue why the BJP did not even think of 2G auctions or Coal block auctions…..leave alone implement. Policies evolve over time and newer ones make the older ones look suspect. Mamata Banerjee refuses to increase railway prices. But is this also “corruption” or is it just a flawed political policy? We still allocate land at concessional rates to SEZs. Is this corruption or policy? The various tax sops given to the IT industry in its early days and then later extended till today….is that corruption or an encouraging government policy? Branding everything as corruption is sensationalist; but also very stupid.

The ultimate test of corruption has to be if some person or some company gained personally. Check our the financial results of different private sector power companies. Tata Power: Revenue Rs 8496 crores. Net Profit Rs 1170 (13.7% margin). Bhushan Power: Revenue Rs 9941 crores. NP Rs 1024 crores (10.3%). Lanco: Revenue Rs 8605 crores. NP Rs 116 crores (1.3%). Jindal: Revenue Rs 13334 crores. NP Rs 2110 crores (15.8%). Adani Power: Revenue Rs 3949 crorese. Net loss Rs 294 crores (-7.4%). Check out the public sector NTPC for a benchmark: Revenue Rs 62053 crores. NP Rs 9223 (14.8%). So which private sector company has been making super-normal profits? If the “proof” of corruption is that these companies benefitted from the government’s “gift”, surely their margins should have been far higher???? Or does it prove the government’s point that the cheap coal was used to give power cheap to the poor? Just for the information of readers of this blog, there are still 300 million Indians who don’t have a power connection. Power consumption in rural India is just 64 KWH and in urban India just 288 KWH per annum, compared to a worldwide average of 2600 KWH. The European countries average is 6200 KWH. Does this sector need government encouragement or not????

The real truth is that giving national resources free or cheap has always been a conscious government strategy. We’ve always been socialistic in approach; never capitalistic. The end result of such policies has always been cheaper end consumer pricing. In a poor country, that should be the primary objective of government policy; not maximizing revenue as some capitalist zealots seem to now be professing. No company makes supernormal profits in telecom; no company is doing it in the power sector. Clearly the Coalgate discussion is nothing but a political one…..the wise and oversmart TV anchor’s views notwithstanding!

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