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CAG: MATHEMATICAL FANTASY AND INTELLECTUAL DISHNONESTY

By Sanjay Jha

( The truth is that pricing of natural resources is a complex task for a country, long protected, experiencing sudden, turbulent and explosive growth. No one has a magic-bullet prescription, 100% error-free).

By the time you read this, you will have coal-dust emerging from your ear-drums and maybe nostrils. Over the last few weeks, practically every mainstream newspaper , business daily, glossy weeklies and electronic channels have come up with their own unique  interpretation of the complex muddle called COAL-CAG report. Lost amidst the blame-game , political opportunism and outright chicanery, and those astronomical , Amazonian fantasy figures of Rs 186,000 crores magically conjured up by CAG is the real story of why we are suddenly inundated with such colossal zeroes from the land of Aryabhatta. BJP of course mischievously maneuvered  a deliberate parliamentary  cul-de-sac,  aimed at stymieing UPA, the country’s interests be damned. As for CAG, it may have just egregiously stigmatized its haloed office.

It’s actually quite simple. A country, long asphyxiated by its own self-strangulating ways, found breathing space in the mid-1980’s when Rajiv Gandhi figured that the Hindu rate of growth was making India soaked in luminous lassitude. Despite some reckless fiscal borrowing, India began to savor the appetizer of exciting growth. But by 1991, India’s economic woes had assumed nightmarish proportions ( partly due to externalities) , and it took a former bureaucrat turned pragmatic Finance Minister ( Manmohan Singh) with an intrepid risk-taking ability to recommend partial convertibility of the Indian rupee. If Salman Rushdie was 1947 Midnight’s Children , 1991 became a watershed for India’s Gen Y, its most defining moment post-Independence, beginning the first romantic flush with that sponsored buzzword “ globalization” . But whoever thought that unfettered globalization will only mean unlimited upsides without corresponding social schisms was either an inveterate optimist or was plain stupid. Or both. That is India’s crisis today. Most  visible , argumentative and supposedly fertile minds have a single-sided comprehension of India Inc story;  there is Davos and then there is Dhanbad. But any elementary student of development economics will tell you that India was always going to encounter a perilous path, despite those snazzy ad-spends on India Shining or this silly notion that India and China are on an irreversible honeymoon trip . It is a foolish fable. That’s where CAG comes in.

Vinod Rai’s CAG seems to be  blatant champions of laissez faire capitalism; they are naïve enough to believe that “people’s resources” should be market-determined by competitive bidding, without the natural fall-out of higher prices being charged to the same people. Because the highest bidder , Mr Rai, then becomes the price-maker, and to recover exorbitant costs is unlikely to absorb financial losses for altruistic purposes; it will be magnanimously fast forwarded to the gullible consumer .  Worse, what if an oligopolistic structure pre-determines auction price, hammering it down to preposterously low  levels? What if the auction timing happens in sullen, bear markets ? There are several imponderables. For the BJP that went on large-scale rampage because price of deregulated petrol was increased, demanding auctions seemed palpable doublespeak. Even their own state governments steadfastly opposed auctions. Thus, what we saw in repeated disruptions was day-light murder of India’s rich parliamentary traditions and democratic heritage. That was the real scam.

Obviously, the human cost of displacement, dispossession, and the antiquated land acquisition laws of 1894 delaying coal blocks into active production is not CAG’s priorty, a deliberate , calculated ignorance of the real stumbling blocks to coal allocations that CAG slyly overlooks. But it is the government’s.  That’s why CAG need to be within its defined financial audits, and not worry about government objectives of social parity and resource mobilization. CAG’s limited vision contumaciously ignores  the social objectives of a popular government in a country facing lopsided development and income inequalities.  Mr Rai, you clearly exceeded your mandate! Why???

The truth is that ever since we began with that pyrrhic, premature India Shining balderdash, it was under UPA that we actually ran China close in GDP growth over the last 8 years, to become the hot BRICS emerging superpower , no longer the poor  LDC ( less developed country) of the past. A strain on resource-generation  was but natural. For long these were archaic matters left to discretionary allotments by state controlled apparatchiks and their political masters , as we only had phlegmatic demand. But when the world’s biggest middle class begins buying smart phones and Japanese SUV’s need long stretches of interminable concrete beauty, then the demand for infrastructure takes primordial precedence. But where are some natural ingredients going to come from?

Just as MTNL and VSNL gingerly side-stepped and made way for private telecom operators to meet untapped domestic demand , the same is the case with coal. In the case of  spectrum pricing, there was prevarication, tentativeness, from licensing fee to revenue share initiated by the NDA, the trigger point for frequent tinkering to happen.  The FCFS ( first come first served basis ) was not inappropriate, but had clumsy crony capitalism written all over it in motivated dole-outs. But practically all expert columnists/commentators missed the striking similarity between 2G spectrum and coal allocations; the truth is no one knew what to do with any reasonable modicum of certainty. Of course, in hindsight we are all a Nostradamus. Honestly, pricing of scarce resources to make it more market-linked  was an unknown territory for all. Some things with the best of intentions you only learn through trial and error; flexibility helps. The bottom-line is that neither the government, opposition, regulators, corporate houses, analysts, media  knew how spectrum could be right-priced; forecasting demand-supply, customer acquisition costs, capital expenditure overheads, per user tariff, potential usage etc were treacherous terrain. Some take advantage of it. The 2 G telecom was not just about a Minister’s charitable largesse, but about dubious execution on account of red tape and our bureaucratic labyrinth. In the case of coal, the complexities lay in the nature of mines, distance from processing /transportation zones, time-taken for land acquisition, the potential demand for capital goods of end-users etc.

Thus , the principal issue is not CAG’s ludicrous loss numbers; they are at worse, outlandish, at best, absurd. But hidden in those numbers is a potential value of economic opportunities for India . Thus,  it is not about Rs 186000 crores, but India’s wherewithal for enhanced quality coal production and self-generating capabilities sans imports to support infrastructure requirements.

In summary , let me make it simplistic:

1)    India’s high GDP growth has created exponential demand for scarce, untapped resources available underground in various minerals.

2)      There is need for a comprehensive understanding of state objectives; revenue maximization, pricing subsidy for retail/industrial consumers, or selective boost to critical users ( like power sector in the case of coal), environmental impact, social equity. This is fundamental to pricing.

3)      None of the critical stakeholders ( government, bureaucrats, corporates, regulators, courts etc) was aware of the appropriate mechanism; this is however, understandable. The uncertainty, dilemma, debate and confusion is not altogether unusual; but extraordinary circumstances will require extraordinary application gong forward. A Raja took full advantage of that tempting phase in policy making called “ animated suspension”. Auction maybe market-linked but may not always be the best option.

4)      The real hindrance is one pure inheritance from the British Raj ; red tape; it is sine qua non that it be addressed on a war-footing. Whether auction is good or not, it could have become coal policy had there not been such gnawing tardiness in setting timelines and surmounting several sign-offs. That’s why the Prime Minister’s recommendation for auctions remained a frozen dessert. To that extent, CAG ‘s “ single-window” recommendation is its most worthwhile contribution. By extension, you may not even need a monstrous Lok Pal if just multiple byzantine structures are done away with; archaic processes is the prime factor for corruption in India and worldwide.

The political gridlock was avoidable, but BJP’s nihilism may cost India dear. Several legislations remained frozen, India paid a price, whose commercial impact may exceed what apparently BJP ostensibly postured to fight for. The BJP boondoggled the Indian public, strolling into parliament like elected dilettante whose primary focus was an early afternoon snooze. It’s  ersatz ire and self-righteousness was so evident, because honestly, they were in one huge performance mode for the cameras and TV studios. And this despite the PM having already ordered inquiries on suspect firms for unethical practices.

The BJP top brass will benefit from carefully listening to former US President Bill Clinton who at the Democrat convention persuaded Republicans to look at America’s future with “constructive cooperation”. The obdurate political opportunism of BJP in stalling Parliament was only orchestrated obfuscation, a great national disservice that deserves a resounding  electoral rejection. Hopefully in 2014 India will talk, and BJP will listen. Ridiculing Parliament may just have been its political suicide, the perfect hara-kiri moment .

The fact is that a 65 year-young nation is finding its feet, and all of us are being wind-swept by is intrinsic seismic reverberations. It is a natural pre-condition prior to relative stability , like an air-pocket on an otherwise tranquil long-distance on the Boeing Dreamliner. This is not the time for mutual recriminations and bitter exhibitionism of parochial politics, but for tempered introspection and profuse patience. Restlessness is good, but can have unhealthy consequences if it becomes a chronic trait.

Some Indian political commentators have been quick to condemn Manmohan Singh, in an act of intellectual disingenuousness. Were they completely oblivious of our babudom culture, a decision-making paralysis interspersed liberally in our political-civic administrative processes? That has been the bane of India, the real raison d’etre  of the gravy train. As a former bureaucrat, that is the area where the Prime Minister can accelerate reforms, as his intent to introduce greater transparency is incontrovertible.

Actually for the first time since his historic August 15 1947 speech, Jawaharlal Nehru’s words need to be resuscitated today as they are germane to our current quandary: “ A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance”.

The author can be followed at Twitter@JhaSanjay

1 Comment on CAG: MATHEMATICAL FANTASY AND INTELLECTUAL DISHNONESTY

  1. Dear Sanjay,
    It is not fair on your part to malign the CAG. One accepts your view that “The truth is that pricing of natural resources is a complex task for a country, long protected, experiencing sudden, turbulent and explosive growth. No one has a magic-bullet prescription, 100% error-free”. However, once the Government chooses a particular policy option, it must implement it. CAG is not entitled to criticise policy choices of the Government. However, CAG is certainly entitled to verify and report whether the policy chosen by the Government has been implemented. CAG is duty bound to report non-implementations, delayed implementations and faulty implementations of Government’s chosen policy and the estimated loss arising from non-implenentations, delayed implementations and faulty implementations. Indeed, CAG has not prescribed the policy option of auctioning. Auctioning was Government’s own chosen policy option and CAG merely did its job of pointing out non-implementation of auction and estimated loss arising therefrom. The loss of revenue from non-implementation of chosen option is real, only financial loss is estimated.If CAG does not give estimates of loss caused due to non-implementation, the executive(Government)will dismiss it as ‘technical, not having any financial implications’ and no corrective measures will take place. There is much CAG-bashing by Congressmen including you, knowing that CAG will not respond publicly to your malicious comments.

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