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print versionThe Hindu, October 8, 2009
The winter of our austerity
by P. Sainath
Corporate Affairs Minister Salman Khurshid’s call for restraint, however mild, on the CEO feeding frenzy at the compensation trough, seems the least objectionable statement made by a Minister in months. (Contrast this, for example, with the Agriculture Minister’s warning that people should accept a further rise in food prices and blame it on drought. Or with a senior member of the Union Cabinet grumbling about the Prime Minister’s austerity drive. How much money will it save if we give up first class air travel, he wanted to know.) But Mr. Khurshid’s words were enough to spook the captains of industry into whines of protest which will steadily get stronger.
"We can hardly say we will shut our eyes to the salaries the CEOs are going to take," said Mr. Khurshid, hoping that companies would refrain from handing out vulgar salaries. An equally mild wish expressed by the Prime Minister in 2007 saw the media come down on Manmohan Singh like they never had before. "The Prime Minister wants CEOs to create wealth for the nation. Then he wants them to take pay cuts." That was a slogan put up by a Mumbai newspaper on huge hoardings.
This time, the media were slow off the blocks in going after Mr. Khurshid. After all, between Dr. Singh’s faux pas and Mr. Khurshid’s mild protest was a Great Recession. And to say "the Market will decide" isn’t enough, any more. In 2008, the Market decided to jump off a cliff taking much of the world with it. That didn’t stop CEOs in the United States from taking home billions in bonuses in a year they ran the globe into the ground. In fact, more CEOs got hikes rather than cuts in 2008, as an AFL-CIO study pointed out in April this year. In India, while millions lost their jobs and livelihoods, CEOs didn’t fare too badly. (How can they, in a country where the Union budget alone gives the corporate world subsidies of Rs.700 crore every day in tax write-offs and concessions? See The Hindu, August 15, 2009). It wasn’t the market which decided that $6 million of public money be gifted to the corporate sector each hour on average, it was the government. The government can though, with few qualms, cap the daily wage paid to hungry workers at NREG sites at Rs.100. That, for 100 days only - and those days to be shared by the members of each household.
So the clich‚s of the Market lack that warm, righteous glow they had before the meltdown. But as big business re-asserts itself, the media will find their voice. Mr. Khurshid is about to find out whose voice that is, loud and clear, if he didn’t already know. And he surely knows the power of corporate links to large sections of the political class. The two highest-paid CEOs in the country managed to save Dr. Singh’s previous government from falling in the July 2008 trust vote. And only recently, much of a whole session of Parliament went to discussing the fight between the same two CEOs. Mr. Khurshid’s comments, however, at least make for a debate on ’austerity,’ its practice by the political class and big business - and the ever-closer bonding between the two.
Growing numbers of elected representatives fund their poll campaigns with corporate backing. And growing numbers of people with a big business background have ventured directly into the electoral arena. The links get stronger, the reps get richer. And there is much entrepreneurial joy and success.
While the CEOs top the charts by miles, the vulgarity Mr. Khurshid fears also consumes much of the political class. Take for instance, the 42 MLAs re-contesting this time in Haryana’s polls. On average, their assets have increased by around Rs.48 million each since 2004. A nice 388 per cent leap. That is to say, each of them added Rs.800,000 a month to their wealth in their last term. Or over Rs.1,100 for every hour that they were MLAs (for five years). A healthy rate of growth. Maybe we need a constitutional amendment requiring every Indian to serve as MLA for one term at least. It could be the biggest poverty reduction programme ever undertaken. (I mean across all States. It might be slightly chaotic if every citizen was required to be a member of the Haryana Assembly.)
These and other fascinating insights abound in the reports put out by the National Election Watch on the Assembly polls in three States. (October 13 is the voting day.) NEW is a coalition of over 1,200 civil society groups across the country that also brought out excellent reports on these issues at the time of the Lok Sabha polls in April-May. Its effort to bring such data to the voting public is spearheaded by the NGO, Association for Democratic Reforms (ADR).
Those who won the last time and seek re-election have led by example. The 388 per cent rise in assets per MLA in Haryana is but an average. Break it up and you find some stirring success stories. The top four MLAs clocking the best growth rates, all of them from the Congress, saw their assets increase by over 800 per cent. Imagine what they might have achieved had there been no austerity drive. The numero uno in this list has a rags to riches story. Starting from humble beginnings of less than a lakh, his wealth has risen 5,000 per cent. Inspiring. And perhaps one of the reasons - together with a love of democracy - why far more have been inspired to contest this time in this State than five years ago. The number of candidates is 20 per cent higher than it was in 2004.
Of 489 contestants whose poll affidavits NEW was able to study, 251 - 51 per cent, or every second candidate - was worth well over Rs.10 million. Though it must be conceded that those at the lower end of the crorepati chain see their assets swollen by crazy real estate rates. And as yet, these are just candidates. The crorepati ratio will go up after the results, when much of the plebeian element gets weeded out. This is not to say the austerity school has no following in Haryana. Some candidates have declared stunningly low assets. A couple of them say they’re worth less than Rs.3,000 and one, poor lamb, has declared zero assets of any kind.
In Maharashtra, compared to 2004, there has been a 60 per cent increase in political parties contesting elections. Also, a 33 per cent increase in candidates. NEW has thus far studied the affidavits of 880 of over 3,500 candidates seeking election to the State legislature. It found that almost one in every four candidates is a multi-millionaire. (Here too, though, there are a daring few claiming zero assets.) NEW has so far seen less than a third of candidate affidavits - and already located 212 crorepatis. Over half of these are from the four major parties, with the Congress (42) heading the austere list. The BJP, the Shiv Sena and the NCP all have 29 each among candidates surveyed. The MNS (21) and the BSP (11) don’t do too badly either. All these numbers will swell when all their affidavits are studied.
Around 52 per cent of Haryana’s 90 sitting MLAs were multi-millionaires. That beats rich Maharashtra where just over one in three (37 per cent) makes the cut. But Maharashtra outclasses Haryana in the number of sitting MLAs with pending criminal records: 45 per cent to 31 per cent. (It might be worthwhile for NEW to correlate criminal records with crorepati status. Even if that takes more time).
And finally, there are those who get elected to serve the CEO cause, bringing us back to the political class-corporate nexus. The present government of Maharashtra, for instance, has handed over 5 airports (including 601 hectares of land) for Rs.63 crore to a single corporation, as Imtiaz Jaleel’s excellent report on NDTV shows. A price so low that even most of the State government’s own departments opposed it. It would likely be difficult to get 601 hectares in the desert for that sum. The government’s brilliant defence is that it has not privatised an inch - just leased out the airports. Yup, for 95 years for that pittance, to the Anil Ambani group. Work out the math yourselves. I hope it doesn’t get any more austere than this, though.
[see graphic: Biz magnate MPs in key House panels / In Conflict of Interest Knot]
Mail Today, 24 September 2009
India Inc. MP’s in Ethics Tangle
by Sowmya Aji in New Delhi
MEMBERS of Parliament belonging to different parties find themselves in the middle of a conflict of interest debate as many of them are part of various standing committees despite being industrialists.
Activists and parliamentarians monitoring the trend said finance- and industry- related committees are the most sought after, and that MPs often lobby hard with their party leaders to be made part of these.
Even a cursory look at the members’ list of important committees, including the standing committees on finance and industry, the public accounts committee and the public undertakings committee, reveals a startling number of industrialists.
Take the standing committee on finance. Its members include industrialist and venture capitalist Rajeev Chandrasekhar from Bangalore; Andhra Pradesh chief minister- hopeful and the state’s leading business
magnate Y. S. Jaganmohan Reddy; pharmaceutical baron Mahendra Prasad, who is popularly referred to in Bihar as ‘ King Mahendra’; Maharashtra- based industrialist and media baron Vijay Jawaharlal Darda; leading Uttar Pradesh- based newspaper publisher Mahendra Mohan Gupta; tobacco exporter and leading liquor distributor Sambasiva Rayapati Rao from Andhra Pradesh; and Magunta Srinivasulu Reddy, another industrialist MP from Andhra Pradesh.
On the all- important public accounts committee sit industrialist Naveen Jindal; Andhra Pradesh- based contractor Kavuri Samba Siva Rao; and Tamil Nadu educationist M. Thambi Durai.
The standing committee on industry comprises Uttar Pradesh businessman Akhilesh Das as its chairperson; Assam’s perfume baron Badruddin Ajmal; and Andhra Pradesh textile manufacturer Gireesh Kumar Sanghi.
The public undertakings committee has three Andhra Pradesh- based businessmen as its members — T. Subbirami Reddy, Nama Nageswara Rao and Rajagopal Lagadapati.
An activist, who has been investigating this issue but requested anonymity, said: “ These committees have the power to summon officers, including those from the income- tax and revenue departments.
The members carry immense clout, so much so that even their personal assistants are known to threaten officials by telling them to cooperate on matters of the MP’s personal interest.†Senior parliamentarians said there should be stricter ethics guidelines about appointments to these committees.
Basudeb Acharia, who heads the agriculture standing committee and is also the CPM’s floor leader in the Lok Sabha, said the guidelines already state that members having conflict of interest with the issue being discussed must leave the discussion, but this is not strictly enforced. “ Obviously there will be conflict of interest if committee members are also dealing with the industry sector under consideration,†he said. “ This should be avoided right at the time the committees are constituted.†Nama Nageswara Rao, a Telugu Desam Party MP and the ex- officio chairman of Madhucon Projects, a construction company, said: “ As politicians, we give up our business interests and concentrate on the public good. Agriculture minister Sharad Pawar owns sugar factories, while the National Unique Identification Project chairperson Nandan Nilekani owns Infosys shares. Why are we, mere members of a parliamentary committee, being asked these questions?†Incidentally, Rao’s committee looks into projects related to the National Highways Authority of India.
BJP spokesperson and Rajya Sabha MP Rajiv Pratap Rudy said it would be “ difficult to completely sanitise the committees†, but added that an attempt should be made to avoid conflict of interest.
“ There should be a disclosure of members’ interests and a clause to recuse when your participation in the proceedings is directly in conflict with business interests,†Rudy said.
A senior Congress MP, who did not want to named, said: “ The ethics committee must take this issue up. The presence of industrialists on parliamentary committees and their decisions could influence their businesses.
All such members should declare their business interests in writing.†CPI MP Gurudas Dasgupta agreed: “ There are several businessmen MPs, and they should reveal such interests to Parliament. Standing committees of Parliament take up issues of many industries.
Such MPs should not take part in those discussions. There is a parliamentary code of ethics that we all follow.†Activists working on this issue pointed out that in other democracies such the US, the UK and Scandinavian countries, guidelines over conflict of interest and public appointments are made public and are strictly enforced.
CPM’s Acharia felt similar guidelines that are strictly enforced in western democracies must be implemented here too. “ Political parties appoint members to these committees, as it is their prerogative.
Parties should not choose such members that have conflict of interest. Guidelines should be framed and followed strictly, just as they do in other responsible and mature democracies.â€
ANDHRA GALORE
Interestingly, the majority of members of these powerful parliamentary standing committees are from Andhra Pradesh.
Of the 31 members of the standing committee on finance, eight members are from Andhra Pradesh alone. Of these, four are leading captains of industry.
This includes Y. S. Jaganmohan Reddy, the son of former Andhra Pradesh chief minister Y. S. Rajasekhara Reddy.
If Jaya Pradha, a Telugu by birth but now a Samajwadi Party MP from Rampur in Uttar Pradesh, is included, there are nine members from Andhra Pradesh on this committee alone.
A political analyst who has been following this trend said: “ Andhra Pradesh MPs lobby very hard to be included in these powerful committees.
It is also a trend in that state that more businessmen, rather than traditional politicians, are becoming MPs.â€
From The Hindu, 3 October 2009
Companies Bill & social accountability
by Mukul Sharma
Environmental concerns, social diversity and similar issues within a company must be seen as its core, interrelated elements.
The introduction of the Companies Bill 2009 in the Lok Sabha on August 3, 2009 was an important step. First introduced in 2008, it lapsed because of the dissolution of the 14th Lok Sabha. The new Bill is meant to address issues of corporate governance and accountability. Companies are accountable for their financial performance as well as social impact. Thus, the Companies Act should be defined broadly, obliging companies to take stock of their business activities and the ir effect on employees, communities and the environment. This Bill, coming after more than 50 years, deserves much better understanding and broader coverage.
Companies are a powerful force for the good — they provide jobs, boost economies and help to protect the environment — but they can also cause serious problems. There are too many instances in which irresponsible behaviour by companies has harmed poor communities, undermined workers’ rights and damaged the environment. Voluntary measures such as codes of conduct or voluntary social and environmental reporting have failed to address these issues and deliver real change. There are too many documented cases in which companies have signed up for such voluntary codes but have failed to deliver.
During discussions last year on the need for a new Bill, there were concrete demands for changes in the law which would ensure that companies became:
(i) Transparent on their social and environmental impact. They should be legally required to report on these, both to shareholders and the public.
(ii) Responsible. Companies and their directors must have a lawful responsibility to manage their wider social and environmental impacts, including taking action to minimise any harm caused to workers, local communities and the environment.
(iii) Accountable. People who are harmed by the activities of a company should be able to take action against it in court, especially when government remedies are inadequate or unavailable.
What the Bill says
The Companies Bill 2009 strives to provide certain basic principles for various aspects of internal governance of corporate entities and a framework for their regulation, and the articulation of shareholder democracy with protection of the rights of minority stakeholders, responsible self-regulation with disclosures and accountability, substitution of government control over internal corporate processes, and decisions by shareholder control. Shareholders’ Associations/Group of Shareholders will be enabled to take legal action for any fraudulent action by the company, and to take part in investor protection activities.
The Bill deals with the duties and liabilities of the directors and provides for independent directors to be appointed on the boards as may be prescribed, along with attributes determining independence. It recognises both accounting and auditing standards. A more effective regime for inspections and investigations of companies while laying down the maximum as well as minimum penalty for offence is prescribed. In case of fraudulent activities/acts, provisions for recovery and disgorgement have been included. There are special courts to deal with offences under the Bill.
Its lengthy arrangements of clauses are for incorporation of companies, share capital and debentures, management and administration, accounts of companies, audit and auditors, appointment and qualification of directors, inspection, inquiry and investigation, revival and rehabilitation of sick companies, the national company law tribunal and appellate tribunal, special courts and many more. However, the Bill, as proposed, has certain serious lacunae.
To illustrate this point, we can compare our Bill with the U.K. Companies Act that came into force in 2007-08. It lays out the basic procedures and systems for the operation of a company also in terms of social accountability, which are lacking in proposed Indian Bill. Unlike any previous law, the U.K. Act states companies must now consider their impact on the community, employees and the environment. Two key sections highlight links between a company’s financial performance and its social and environmental impacts. They are: (a) Directors’ duties (Section 172) — they have a responsibility to consider their company’s impact on a range of social and environmental matters; (b) Transparency (Section 417) — publicly listed U.K. companies have a responsibility to report openly on their social and environmental risks and opportunities to their shareholders, as well as on employee matters and risks down supply chains. With these two sections in place, the U.K. Act provides a tool to help defend the rights of people and protect the environment against irresponsible corporate behaviour. However, this is severely lacking in the Indian case.
What should it mean?
To make the Companies Bill in India truly effective, we have to think of it within the framework of corporate social accountability. The directors of a company have a primary duty to promote its success for the benefit of shareholders. Importantly, the Bill must state that in fulfilling this duty, directors should also consider issues relating to employees, suppliers, customers, community, and the environment. In practice, this means that violating social and environmental standards can present a financial risk to the company. Generally speaking, directors will be required to be more conscious of how they manage their social and environmental impacts.
Take another example. Companies are required to produce annual reports. Under the proposed Bill, they should be asked to report on environmental matters, including the impact of the business on environment, employees’ social and community issues, persons with whom the company has contractual or other arrangements, which are essential to the company’s business. Companies should be expected to report to shareholders measures for reducing pollution or carbon dioxide emissions, staff retention, diversity and training, human rights implications of their activities, and supply chain issues (including the environmental and human rights standards of other companies which they own or of which they are part).
Seeing the recent corporate events in India, stakeholders are demanding greater credibility and transparency from the companies. Just stressing management and administration, reporting and auditing and ensuring financial performance through the Bill are not enough. A new accountability system is required to define, capture, manage and report on obligatory indicators, beyond traditional financial measures of performance. There are growing efforts among countries and international organisations to move towards enforceable standards and implement a company management system that can assess and report on economic, environmental and social impacts together. Many times, money and effort have gone into preparing a new Company Bill with ideas “to allow the country to have modern legislation for growth and regulation of the corporate sector in India ... in consonance with the changes in the national and international economy,†“to be suitable for addressing various contemporary issues relating to corporate governance, including those which have been recently noticed during the investigation into the affairs of some of the companies.â€
But what will be the real value if it remains a weak and narrow Act? This search for value can lead us to learn from different countries, and other Acts and formats, targeting multiple concerns. This approach will help the government and the corporate sector address some of the serious deficits that emerged in the past and exist in the present. Some of the limitations act as a reminder, telling us that financial governance is only one part of the broader issue of corporate governance, with diverse stakeholders, citizens and society at large. Environmental concerns, social diversity and similar issues within a company must therefore be seen as its core, interrelated elements. They should be in a continuum under such an Act rather than stand-alone exercises.
The Hindu, 15 August 2009
Drought of justice, flood of funds
by P. Sainath
Ask for expansion of the NREGS, universal access to the PDS, more spending on health and education — and there’s no money. But there’s enough to give away to the corporate world in concessions.
Sure, August is proving an unusual month. But what an extraordinary one July was! We celebrated the delivery of the cheapest car in the world and the costliest tur dal in our history within the same 31 days. And it took some work to get there. The price of tur dal was around Rs. 34 a kilogram just after the 2004 elections, Rs. 54 before the 2009 polls, Rs. 62 just after and, now at over Rs. 90, bids for three-figure status.
The euphoria of July also saw Montek Singh Ahluwalia declare that the “worst is behind us.†(Though it must be conceded that he said that even in June and, possibly, earlier.) That’s good. I only wish he had told us when the worst was upon us. It would have been nice to know. Otherwise, it gets hard to appreciate improvement.
As a matter of fact, Prime Minister Manmohan Singh and Agriculture Minister Sharad Pawar suggest that the worst could be ahead of us. And they don’t mean the swine flu. Both appear to have written off much of the kharif crop. They advise us to buckle up for a further rise in food prices due to the drought they now say affects 177 districts. That they’ve thrown in the towel on the kharif crop is evident in their calling for a more efficient planning of the rabi. Yet, the government had two months during which it could have opted for compensatory production of foodgrain in regions getting relatively better rainfall. But there was no effort at monsoon management.
Even today, there are very useful things that could be done to counter the worst ahead. A positive step taken by the Rural Development Ministry now allows small but vital assets like farm ponds to be created on the lands of farmers through the NREGS. A pond on every farm should be the objective of every government. (Incidentally, this would help hugely with the rabi season. It would also ease the hostility of quite a few farmers towards the NREGS.) A massive expansion of the NREGS will also help cushion the lakhs of labourers struggling to find work and devastated by rising food costs. But it would call for throwing out the entirely destructive 100-days-per-household limit on work under the scheme. With the Prime Minister calling for anti-drought measures on “a war footing,†this should be the time to do it.
The price-rise-due-to-drought warning is a fraud. Of course, a drought and major crop failure will push up prices further. But prices were steadily rising for five years since the 2004 elections, long before a drought. Take the years between 2004 and 2008 when you had some good monsoons. And more than one year in which we claimed “record production†of foodgrain. The price of rice went up 46 per cent, of wheat by over 62 per cent, atta 55 per cent, salt 42 per cent and more. By March 2008, the average increase in the prices of such items was already well over 40 per cent. Then, they rose again till a little before the 2009 polls. And have risen dramatically in the past three months.
The Agriculture Minister appears to have figured out that the stunning rise in the price of pulses may have little to do with drought. “There is no reason,†he finds, “for prices to rise in this fashion merely on a supply-demand gap.†He then goes on to find a valid reason: “blackmarketing or hoarding.†But remains silent on forward trading in agricultural commodities. Many senior Ministers have long maintained that “there is no evidence†that speculation related to forward trading has had any impact on food prices. (The ban on trading in wheat futures was lifted even before the results of the 2009 polls were announced in May. And existing bans on other items have been challenged in interpretation.)
The price rise since 2004 could be the highest for any period in the country barring perhaps the pre-Emergency period. For the media, of course, July was far more interesting for the political price in Parliament over the gas war between the Ambani brothers. When these two barons brawl, governments can fall. Also, how could atta be more interesting than airline tickets (the prices of which fell dramatically over several years)? Food prices might have gone up but airline travel costs went down and those are the prices that mattered.
So the price of aviation turbine fuel became a far more to-be-covered thing as private airlines threatened a strike demanding public money bailouts. At the time of writing, it appears the government will try and make things cheaper for them. These airline owners include some associated with the IPL, which got crores of rupees worth of tax write-offs last year. Maharashtra waived entertainment tax on the IPL. And with so many games held in Mumbai that proved a bonanza for the barons paid for by the public.
There’s always money for the Big Guys. Take a look at the budget and the “Revenues foregone under the central tax system.†The estimate of revenues foregone from corporate revenues in 2008-09 is Rs. 68,914 crore. (http://indiabudget.nic.in/ub2009-10/statrevfor/annex12.pdf) By contrast, the NREGS covering tens of millions of impoverished human beings gets Rs. 39,100 crore in the 2009-10 budget.
Remember the great loan waiver of 2008, that historic write-off of the loans of indebted farmers? Recall the editorials whining about ‘fiscal imprudence?’ That was a one-time, one-off waiver covering countless millions of farmers and was claimed to touch Rs. 70,000 crore. But over Rs. 130,000 crore (in direct taxes) has been doled out in concessions in just two budgets to a tiny gaggle of merchants hogging at the public trough. Without a whimper of protest in the media. Imagine what budget giveaways to corporates since 1991 would total. We’d be talking trillions of rupees.
Imagine if we were able to calculate what the corporate mob has gained in terms of revenue foregone in indirect taxes. Those would be much higher and would mostly swell the corporate kitty for the simple reason that producers rarely pass on these gains to consumers. Let’s take only what the budget tells us (Annexure 12, Table 12, p.58). Income foregone in 2007-08 due to direct tax concessions was Rs. 62,199 crore. That foregone on excise duty was Rs. 87,468 crore. And on customs duty Rs. 1,53,593 crore. That adds up to Rs. 3,03,260 crore. Even if we drop export credit from this, it comes to well over Rs. 200,000 crore. For 2008-09, that figure would be over Rs. 300,000 crore. That is a very conservative estimate. It does not include all manner of subsidies and rate cuts and other freebies to the corporate sector. But it’s big enough.
Simply put, the corporate world has grabbed concessions in just two years that total more than seven times the ‘fiscally imprudent’ farm loan waiver. In fact, it means that on average we have been feeding the corporate world close to Rs. 700 crore every day in those two years. Imagine calculating what this figure would be, in total, since 1991. (Er.., what’s the word for the bracket above ‘trillion?’) Ask for an expansion of the NREGS, seek universal access to the PDS, plead for more spending on public health and education — and there’s no money. Yet, there’s enough to give away nearly Rs. 30 crore an hour to the corporate world in concessions.
If Indian corporates saw their net profits rise in April-June this year, despite gloom and doom around them, there’s a reason. All that feeding frenzy at the public trough. The same quarter saw 1.7 lakh organised sector jobs lost in the very modest estimate of the Labour Ministry. That’s not counting the 15 lakh jobs said to have been lost in just the export sector between September and April by the then Commerce Secretary.
And now comes the drought. A convenient villain to hang all our man-made distress on — and sure to oblige by adding greatly to that distress. A huge fall in farm incomes is in the offing. If the government wants to act on a war footing, it could start with a serious expansion of the NREGS (about the only lifejacket people in districts like Anantapur in Andhra Pradesh have at this point, for instance).
It could launch, among many other things, the pond-in-every-farm programme. It could restructure farm loan schedules. It could start getting the idea of monsoon management into its thinking. It could curb forward trading-linked speculation that was driving one of our worst price rises in history long before the drought was on the horizon. And it could declare universal access to the PDS. That cost could probably be easily covered by, say, cancelling the dessert from the menu of the unending corporate free lunch in this country.
Rediff.com, 7 August 2009
When corporations capture the state
by Praful Bidwai
The danger of a corporate capture of government isn’t imaginary, and corporations represent narrow profit-seeking interests of businessmen whose forte is not Constitutional values, says Praful Bidwai.
Regardless of what happens to the contentious dispute, also called epic battle, between the Ambani brothers over the supply of natural gas from the Krishna-Godavari Basin, three things are crystal-clear.
One, the dispute’s huge political dimension dwarfs its legal or commercial issues such as the agreement signed between Mukesh Ambani’s Reliance Industries and Anil Ambani’s Reliance Natural Resources on the purchase of the gas at a particular price.
Battle-lines stand drawn between political parties over whom they’ll back. The Supreme Court hearing scheduled for September 1 will further polarise opinion.
Second, the natural gas sector remains under-governed despite its importance — not just financially, but as a key fuel in India’s much-needed transition to a low-carbon economy. There have been about 100 discoveries of natural gas and oil since the New Exploration Licensing Policy was launched 10 years ago.
The value of these stocks is estimated at a substantial 15 per cent of India’s GDP. But the government has generally adopted a ’hands-off’ approach to the gas business — only to intervene at critical junctures in a partisan manner.
Third, there is no clarity in policy on the use or pricing of gas, and on different options including conservation, pace of production and its alternative uses as chemical feedstock and fuel.
Excessive concentration and monopolies/oligopolies are emerging in gas production and downstream industries. These will raise costs across-the-board. And harm the larger economy.
Although the government says it will intervene in the Ambani case only to defend the ’public interest’ and assert the national ownership of gas, it isn’t easy for the public to believe it’ll act impartially and fairly, given its recent record of caving in to powerful industrialists.
Meanwhile, in another scandal, India’s private airlines are arm-twisting the government to rescue them as their losses skyrocket from Rs 4,000 crore (Rs 40 billion) to Rs 10,000 crore (Rs 100 billion). They even threatened to go on strike.
Although that call has been withdrawn, this cartel’s pressure hasn’t eased. It’s demanding a reduction in the price of aviation turbine fuel (ATF), which is 40 per cent higher than in many Western/Gulf countries. It also wants airport user-fees lowered.
While the airlines have a point on the high fees charged by private airport developers, they’re silent on their own default — dues of more than Rs 3,000 crore (Rs 30 billion) to the National Airports Authority and public sector oil companies.
ATF prices are high in India because of cross-subsidies on diesel, kerosene and LPG. The airlines got into the aviation business fully knowing this.
Pampered for years, the private airlines are in trouble for two reasons. First, they expanded recklessly in their rush to grab as big a market share as possible. Second, the government deregulated the sector wholesale, jettisoning norms of prudence like adequate capitalisation, and allowing carriers to set their own routes, flight schedules and time-slots.
All kinds of fly-by-night (literally) operators entered aviation. They abused their ’freedom’ to rig fares and slots and corner the public-owned Indian Airlines (since merged with Air India ).
Furious expansion led to a 30 to 50 per cent overcapacity in aviation. But carriers kept ordering more aircraft to retain market shares, thus aggravating overcapacity and losing more money. They nurtured the illusion that air travel would become affordable for ’the common man’.
Many airlines set their fares predatorily low to lure passengers away from rail travel. Yet, at the peak of the ultra-low fare regime, only 3 per cent of the Indian population was flying!
By 2007, many airlines had become unviable. Jet bought out Sahara and Kingfisher acquired Deccan in anti-competitive mergers, which shouldn’t have been allowed in the first place.
Then came the economic slowdown. The private airlines, which are products of, and glorify, ’free enterprise’, now want the state to rescue them with public money! The state should do nothing of the sort. Those who live by the free market should die by the free market.
This is a good occasion to ask some questions about business-politics relations in India. Contrary to the claim that liberalisation, launched in 1991, would end much-abused ’licence-permit raj’ and make the government irrelevant in economic decision-making, the state’s importance remains unaltered although its site and focus have changed.
Businessmen have become increasingly cynical in manipulating the state, often in criminal ways, to corner scarce resources and earn rent and super-profits. They have developed this into a fine art.
Indeed, Rajeev Chandrasekhar, immediate past president of the Federation of Indian Chambers of Commerce and Industry, says that liberalisation has not produced ’a new type’ of entrepreneur — ’espousing good corporate governance and honesty as the norm. Actually, the reverse is true. . . [I]ncreased opportunities and . . . political influence and public policy on the creation of wealth have. . . created more greed and far too many corporates. . . [are] walking the narrow line between right and wrong. . . This is the ugly side of economic liberalisation. . . ’
The state remains the sole policymaking agency and main allocator of scarce resources — land, water, minerals, airwaves, the electromagnetic spectrum, oil and gas.
It sets all tax rates, which can make or break businesses. It gives companies permission to borrow money at low interest rates from abroad, which can overnight make them richer by billions. It also determines the maximum area on which urban construction may be allowed. It’s also responsible for all regulation. Markets, however developed, cannot function efficiently without regulation.
The key to business success in India lies often less in real entrepreneurship than in capturing these major functions of the state. Nothing guarantees you higher profits better than favourable official treatment, which allows you to corner resources, grab licences or establish monopolies.
That’s why Indian businessmen invest so much in influencing policies and policy-makers, in creating lobbying institutions such as FICCI, Confederation of Indian Industry and Assocham, and in building personal relationships with and patronising political leaders.
Historically, Indian businessmen have used three methods in this enterprise: bribing or buying up ministers, and increasingly bureaucrats, to secure exemptions from the rules, to get permits or receive other favours; second, getting nominated to advisory bodies such as the Prime Minister’s Council on Trade and Industry and various state-level committees; and third, influencing, if not determining, the appointment of ministers and senior officials in various departments of the government to rig high-level decision-making directly.
The first, well-established, route includes the creation of income-earning opportunities for politicians/bureaucrats and their relations and sharing of kickbacks on contracts, especially those generally shielded from public scrutiny such as defence deals.
The favours sought are increasing in their sophistication. In place of illegitimate licences or overnight changes of rules, businessmen want alterations in the terms of auctioning processes. Many businessmen have become MPs to access classified information on and influence policy on their industries.
The second method was inaugurated by the National Democratic Alliance, which nominated industrialists with a stake in particular fields (e.g. infrastructure, textiles, aviation, information technology) to head policy advisory committees.
The United Progressive Alliance has continued this, albeit less blatantly. The scope of industry-dominated committees has been expanded to regulation too — as with the just-created Food Safety Authority.
Once Big Business captures the regulatory heights, it’s virtually impossible to control or monitor its activities and bring it to book. That’s just what’s happening to the environmental impact assessment and clearance process.
That’s also true of the Satyam scam, which exposed the failure of all supervisory bodies, including the statutory auditor, independent directors, Institute of Chartered Accounts of India and the Securities and Exchange Board of India.
The third method is particularly pernicious because it means directly infiltrating the government. Yet, its use is growing. It’s well known that certain business houses determine or veto appointments to crucial ministries, from the director or joint secretary level upwards. Their nominees always ensure that their narrow interests are protected.
And now, the UPA has established a fourth method by inducting business executives into minister-status jobs. The nomination of Infosys co-founder and ex-CEO Nandan Nilekani as chairman of the new Unique Identification Authroity of India with Cabinet rank and that of management consultant Arun Maira as a Planning Commission member set a bad precedent.
It’s not that Mr Nilekani lacks competence or integrity. It’s simply that his assignment is of a technical, not political, nature. It doesn’t deserve to be sanctified by a high rank incommensurate with the absence of public accountability.
In the Cabinet system of government, ministers must be elected. Mr Nilekani could have been given a contract after due bidding for producing a unique identity for each citizen. As for Mr Maira, it’s hard to justify the elevation of a corporate-oriented consultant to the Planning Commission.
The danger of a corporate capture of government isn’t imaginary. It’s a growing phenomenon. Sections of the media celebrate it as a great advance — only by ignoring the clear conflict of interest that’s involved.
Corporations represent the narrow profit-seeking self-interest of businessmen whose forte is not Constitutional values. But politics is a contestation about just those values and public morality. It must not be suborned by business interests.
See Also
Stop Big Business From Funding Political Parties in India
by Rajindar Sachar (sacw.net, 11 April 2009)
