How the future was compromised

Power, steel, cement and ferroalloys need coal. Coal India does not produce enough to meet domestic demand. Illustration by C R Sasikumar. (Representational)

Presumptive loss is actionable. Actual loss is not. Ironic but true. It seems Rs 2,50,000 crore lost on account of demonetisation is not actionable because the Comptroller and Auditor General of India (CAG) says he cannot go after policy decisions. Also, no-one can be held responsible not just for over 100 lives lost of people forced to stand in queues, but also for the yet untold stories of those who lost loved ones for want of cash in medical emergencies. But his predecessor not only questioned the policy decision of not auctioning spectrum and coal blocks but also conjured up astronomical figures of alleged presumptive loss. I suppose institutional positions change with the change of CAG. Institutions don’t matter, people do. That is why we often witness the ugly spectacle of the National Investigation Agency and the CBI doing a U-turn, depending on the political masters they wish to please.

We lament the state of our economy, especially the increasing non-performing assets of banks. The credit for this, in no small measure, goes to the judiciary for its path-breaking judgements cancelling, with a flourish of the pen, all telecom licences and coal block allocations, oblivious of their disastrous economic consequences. Many investors, foreign and domestic, found their investments set to naught without establishing culpability. The government consequently had to put to auction spectrum and coal blocks, for any other method of dealing with such natural resources would have earned it the ire of the court. The CAG, donning the mantle of virtue personified, convinced himself that natural resources, if allocated without competitive bidding, will amount to shortchanging government coffers. Under the garb of a “performance audit”, he over-performed by evolving the concept of presumptive loss which cost the UPA its credibility. The result: Five mega hertz of 2G spectrum allocated at Rs 1,651 crore was auctioned at a base price of Rs 14,000 crore in 2012. Telecom operators starved of spectrum had to bid to survive. Capital required for investments in infrastructure went into discharging debt. Banks were not willing to lend to operators already heavily indebted and return on investment was inadequate to service mounting debt.

Eight years down the road, the sector is under a debt of around Rs 5 lakh crore (the banking sector pegs it at Rs 7.29 lakh crore). Telenor, Etisalat and Sistema bled and have exited. Vodafone and Idea intend to merge and Tata Telecom has been, in a sense, gifted to Airtel. Reliance is in deep trouble, the Aircel-Reliance deal having fallen through. Reliance has no choice except to exit. So we will be left with three players: Jio, Airtel and Vodafone/Idea. Vodafone might not wish to increase its exposure any more, given the nature of our regulatory juggernaut. Allocation of spectrum encouraged competition leaving surpluses for investments in infrastructure. Auctions soured that story.

Power, steel, cement and ferroalloys need coal. Coal India does not produce enough to meet domestic demand. States seek investments in these sectors but without firm and adequate supply of coal, stakeholders are hesitant to invest. All the allocations were cancelled by the Supreme Court which found fault with both extant procedures for allocations made on the recommendations of the screening committee set up by the Union, and in law, in the absence of amendments to the Coal Nationalisation Act. At the auction which followed, the results were disastrous. Many failed and some of those who succeeded were targeted; their bids were cancelled for obviously political reasons. Over a hundred coal blocks have yet to be put up for auction. The investment climate being, to say the least, tepid, there are hardly any takers. Qua some auctions, the bid parameters were sought to be changed midstream. Most of the auctions were mired in litigation for different reasons. Output suffered. Import, the only alternative source of coal, was at the time an expensive option, impacting competition. In an emerging economy, if there is no demand for power, the economy suffers from a development paralysis. Auction of coal blocks and its consequences contributed to the NPAs.

The media loves sensation. The CAG’s outlandish conclusions were a godsend. They wanted answers without listening. They bayed for blood and loved the sight of it being splashed on celluloid. They, in turn, were courted by the Opposition by paralysing Parliament. The contention that spectrum allocations were made on the basis of policy had no takers. To them, loss of revenue, even though presumptive, was unpardonable. Little did they realise that the objective of any policy prescription is affordable and quality service to the consumer which will elude him if resources are perceived as milch cows to enrich the government. That way both government and industry will suffer and the consumers will lose out in the long term. Only if industry prospers will the consumer benefit. The Opposition did not wish to see beyond its nose, for politics was above all else. No-one grasped the fundamental premise that low-cost allocation of resources will allow entrepreneurs to provide efficient affordable service and if industry prospers government too will benefit. In the telecom sector, it would have shared the profits of the operator. Government stood to profit in other ways: Increased private sector investment, greater FDI, if permissible, employment generation, increased revenues through our taxing regime etc.

Presumptive loss made good headlines but the proposed economic model was disastrous for the economy. The only economic model that will work is for the state to share in the prosperity of the private sector. An overzealous CAG, bloodthirsty media, myopic Opposition and Supreme Court judgements, which lacked vision and were short on the law, impacted India’s progress adversely. This was the beginning of the decline. The CAG, media, the Opposition and the Court need to realise that such mistakes can cost us our future.