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AModestProposalregardingSubsidies
PrimeMinisterManmohanSinghhasfacedconsiderablecriticismforhisrecentremarksregardingthe
saleof2Gtelecomlicencestocorporatebaronsatamassivelosstotheexchequer(equivalentto1.2to
3.5percentofIndiasGDP,accordingtodifferentestimates).Addressingararepressconference,he
said:

Iamnotinapositiontosaythatthereisafoolproofmethodinwhichonecandetermine
theextentoftheloss.Itisverymuchafunctionofwhatisyourstartingpoint.Andalso
dependsuponouropinion.Wehaveabudgetwhichgivessubsidyforfood,Rs80,000
crore1perannum,somepeoplemaysaythesefoodgrainsshouldbesoldatmarketprices.
Willwesaythen...becausetheyarenotsoldatmarketprices,becauseyouaregiving
themasubsidy,itisalossofRs80,000crore.Wesubsidisethepriceofkerosenetoan
extentwhichisgreaterthanmanyothersubsidies,thatimposesburdenonouroil
marketingcompanies,shouldwesaythenthat...thatthereislossofrevenue.

SomeexpressedshockatthePrimeMinisterscomparingsubsidiesonthesubsistenceconsumptionof
thepoorwithgiganticunderhandgiveawaystotopcorporatefirms.However,theyappeartohavemissed
thepoint.TheeconomistinManmohanSinghhasstrippedawaythepretensethatthesaleof2G
spectrumwasacommercialsaleatall:rather,itwasaprovisionofsubsidy,achanneloffinancial
assistancefromtheStatetoparticularpersons.
Thisisindeedarefreshingperspective.Itshouldnotberestrictedtothe2Gsale.Itneedstobeextended
toourunderstandingofawidearrayofsocalledscams.Oncewegraspthatthesescamsareinfact
methodsbywhichtheStatechannelsfinancialassistancetotheprivatecorporatesector,wecan
dispensewithcallingthemscams.Thisstepitselfwilldispelthecloudsofdoubtanduncertaintythathave
darkenedthepresentinvestmentclimate.
Belowweapplythisperspectivetothreeveryprominentexamplesofscams,orrather,nontransparent
subsidies,whichhavemadenationalheadlinesinthelastfewmonths.Everysubsidy,ofcourse,hasa
broadersocialobjective.Inthecaseofthesubsidiesunderdiscussionhere,thepurposeistoenricha
microscopicsectionofsociety.Thetestofthesubsidyishowefficientlyitmeetsthatobjective.Asweshall
seebelow,whilethesesubsidieshavecertainlysucceeded,thereremainproblemsoftransparency,
efficiency,targeting,andvulnerabilitytopoliticalattacks.
Weproceedtooutlineamodestproposalforreformofthesystemofsubsidiestotheprivatecorporate
sector,soastoprovidetheminatransparent,welltargetedfashion,reducingsomeoftheleakagesto
nontargetedsections.Wefurtherenumeratesomeofthebenefitsofsuchtransparency.
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*
I.2G
Takewhatisreferredtoasthe2Gscam,orinthePrimeMinisterswords,subsidy.2Gisshortfor
secondgenerationwirelesstelephonetechnology.TheGovernmentallocatestheexclusiverightto
broadcastatparticularradiofrequenciestovariousentitiessuchasthearmedforces,police,civilaviation,
radiostations,televisionstations,andtelecommunicationsfirms.Inordertocarryonthebusinessof
mobiletelephony,afirmneedstoholdradiospectrum,whichisthusveryvaluable.InJanuary2008,the
thenministeroftelecommunications,A.Raja,issued122newlicencesformobiletelephony(whichcome
bundledwithspectrum)onasingleday.Onlycertainfirms,onthebasisofadvanceinformation,wereable
tofulfiltheministersnewconditionsinthehalfadayheprovided.Thesefirms,mostofwhichhadhitherto
notbeenintelecommunicationsbutinunrelatedfieldssuchasrealestate,obtainedspectrumatabsurdly
lowprices(basedon2001pricesformobileserviceslicences).Further,firmswhichhadlicencesfor
CDMAtechnologyweregivenlicencesforGSMtechnology,alongwithadditionalspectrum.
ThefactthatthesalewasatmuchbelowmarketpriceswasconfirmedbytheComptrollerandAuditor
General(CAG).TheCAGemployedthreedifferentmethodstodiscoverthemarketprice:theprice
offeredinNovember2007byaprospectivelicenceethepricesatwhichthenewtelecomfirms,having
wonspectrum,soldtheirsharesshortlythereaftertoforeignfirmsandthepriceatwhichthenextsaleof
spectrumtookplace(in2010),bypublicauction.Thefirsttwomethodsputthelosstotheexchequerat
betweenRs57,666crore(Rs577billion)andRs69,626crore(Rs696billion)thethirdmethodputthe
lossatRs176,645crore(Rs.1.77trillion).Eventhelowestestimateisnearlyonethirdofcorporate
incometaxpaymentsin200708(Rs192,911crore,orRs1.93trillion).
Now,in200708,whenthe2Gsaletookplace,totalfoodsubsidywasRs31,328crore(Rs313billion),
andfertilisersubsidywasRs32,490crore(Rs325billion).Thusthecombinedsubsidyonthesetwoitems
amountedtoroughlythesamefigureasthelowerestimatesofsubsidytothecorporatesectorthatyear
onjustoneitem,i.e.,2Gspectrum.
SomequestiontheuseofthetermsubsidyforwhattheGovernmentspendsonitemssuchasfood
distribution.Theypointoutthat,inthefirstplace,thepoliticaleconomyofIndiaoperatestogrinddownso
lowtheincomesoftheverypeoplewhogeneratethewealthofthenationthattheyareunabletoafford
fooditself.In200405,themedianincomeintheruralareaswasjustRs15perday,andinurbanareas,
justRs262(themedianincomeisthatofapersonatthemidpointofthepopulation,i.e.,withhalfthe
populationrankedbyincomeaboveher,andhalfbelow).Bycontrast,thepercapitaincome(i.e.,theGDP
ofIndiadividedbythepopulation)thatyearwasRs82perdaypointingtotheextremeconcentrationof
incomeatthetop.Thesepersonsclaimthat,infact,thesuppressionoftheincomesoftheworking
majorityworkstosubsidisethoseatthetopandafewcrumbsaretossedbackintheformoffood
subsidyandotherwelfaremeasures.However,anexplorationofthissubjectisbeyondthescopeofthis
article.
Whowerethebeneficiariesofthe2Gsubsidy?Amongthemweresomeofthelargestfirmsandbusiness
housesinthecountryRelianceADAG,TataTeleservices,Essar,Videocon,Unitech,andsoon.Their
ownersincludenumbers4(Ruias),8(AnilAmbani),30(DhootofVideocon),and51(ChandraofUnitech)
ontheForbeslistofIndianbillionaires.(RatanTatasnameisnotonthelist,butforallpracticalpurposes
heisinfactamongthewealthiestmeninthecountry.)
SuchhiddensubsidiestotheForbeslistdwarfthesumsallocatedbywayofsubsidiestothepoor.We
havediscussedthisseveraltimesinAspects,includinginthepreviousissue.Thepointhereisthatthese
subsidiestothewealthyaregiveninanontransparentmanner,disguisedundervariousothernamesand
heads,leavingthemvulnerabletocriticism.
*
II.KGD6
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Aftertheinitiationofreformin1991,thepublicsectorfirmOilandNaturalGasCommission(ONGC)saw
asharpslideinitsperformance,largelyasaresultofsystematicunderinvestment,onGovernment
instruction.ItshouldbenotedthatONGConcehadconsiderableexperienceandexpertiseinexploration,
andhaddiscoveredtheBombayHighfield.Moreover,duringthe1990s,ithadlargecashreserves.
Despitethesethousandsofcroreslyingidleinthebank,ONGCsinvestmentinthedecadeafterthe
initiationofreformwasexceedinglylow.Asaresult,notonlydiditscrudeoilproductiondropduringthe
1990s,butitsexplorationactivitiescametoavirtualhalt.Thiswasnotaccidental:TheGovernmentwas
preparingtohandoverprospectiveareastotheprivatesector.
In1999,theGovernmentannouncedtheNewExplorationLicensingPolicy(NELP)withthestated
objectiveofattractingprivateinvestmentindomesticoilproduction.Onthebasisofgroundworkdoneby
ONGCincollectinggeologicaldataandmappingblocksforexploration,variousblocksinidentifiedoiland
gasfieldswereofferedtoprivateoperatorsonleaseforexplorationandproduction.In2000,inthevery
firstroundoftheNELP,RelianceIndustriesLtd(RIL)wonbidsfor12suchblocksintheKrishnaGodavari
(KG)basin.BycontrastwithONGC,atthetimeRILhadnoexperienceinexploration.
Therearetwomainstrandsinthefollowingstory:thesharingoftherevenuesfromnaturalgasbetween
RILandtheGovernmentandthepriceatwhichReliancewouldsellthegastoindustrieswhichrequired
gasasaninput.
(i)Inflatedinvestment:UndertheNELP,privateoperatorssignaproductionsharingcontract(PSC)with
theGovernmentsettingoutthetermsoftheirlease.ThePSCfortheKGbasinlaysdownthatRIListo
paytheGovernmentonly10percentofthetotalrevenueuntilitrecovers1.5timesitsinvestment
thereaftertheGovernmentsshareistoriseslowly,untilRILrecovers2.5timesitsinvestment.Atthat
point,theGovernmentsharerisessteeply.3Hence,byoverstatingitsinvestment,RILstandstogain
revenueattheexpenseoftheGovernment.Inthewordsoftheheadoftheofficialcommitteeonnatural
resourceallocation,formerfinancesecretaryAshokChawla,thissystemgivesincentiveto(anoperator
to)increasehisinvestment4thatis,incentiveforfraud.
In2002,RILannouncedthediscoveryofverylargereservesofnaturalgasintheD6blockofthebasin
(todayestimatedat14trillioncubicfeet).Itestimatedtherequiredcapitalexpenditureforthefieldat$2.4
billion.Itdidnotbotherwithirksomedetailssuchasthesubmissionofacomprehensivefielddevelopment
plan,asrequiredbythecontract.
In2004,V.K.Sibal,forwhomRILhadthoughtfullyboughtahouse,wasappointedDirectorGeneralof
Hydrocarbons(DGH).Hisapproval,undertheNELP,wasrequiredforanyincreaseincapitalexpenditure.
Twoyearslater,MurliDeorawasmadeministerforpetroleumandnaturalgas,hischiefqualification
beinghisintimacywithfirstDhirubhaiandnowMukeshAmbani.Thatyear,RILgottheDGHtoapprovea
massiveupwardrevisionofcapitalexpenditure,fromtheoriginal$2.4billionto$8.8billion.(Therevised
capitalexpenditurewasapprovedbyamanagementcommitteeoffourtwojuniorofficialsoftheministry
ofpetroleumandDGH,andtworepresentativesofRIL.)Assuch,amuchlargershareofrevenueswould
gotorecoveryofRILsinvestmentthanundertheearlierapprovedexpenditure,andtheGovernments
revenueswouldcorrespondinglydecline.
ThedeliveryofsubsidytoRIL,then,wasproceedingsmoothlyaccordingtoplan,andwouldhave
continuedtodosoifanothercorporatechieftainsinterestshadnotbeenaffected.In2009,AnilAmbani,
whendeniedcheapgasbyMukesh,retaliatedbypublicisingthefactthatthecapitalexpendituresofKG
D6hadbeeninflated.Asaresultofthepubliccontroversy,theGovernmentwasforcedin2009toordera
CAGauditoftheproductionshareingcontracts(PSCs)foronshoreandoffshoreoilblocks,includingthe
KGbasin.
TheCAGdraftreportwasleakedtothemediainJune2011.Itsfirstfindingconfirmedemphaticallywhat
wasalreadywellknownsince20095:namely,thatthecapitalexpendituresoftheKGbasinD6blockhad
beeninflated,withvirtuallynoGovernmentscrutiny.Thesecondfindingwasnew,andequallysensational.
Thecontracthadstipulatedthat,oftheareaRILwonforexploration(7,645sqkm),itwouldretainonlythe
discoveryarea,andreturntotheGovernmentthoseareasithadnotdrilled(i.e.,95percentofthearea).
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ThiswouldhaveallowedtheGovernmenttoretenderthoseareas,fromwhichitwouldearnamuch
higherpricethanitreceivedfromRILfortheentireareain2000,asthediscoveriesintheinterimperiod
wouldleadtoapresumptionthattheremainingareatoocontainedhydrocarbons.However,usingitsclout
withtheDGH,Relianceheldontotheentirearea,andgotitclassifiedasdiscoveryareawhich,
correctlyspeaking,includesonlytheactuallydrilledarea.6ThelosstotheGovernmentasaresultof
goldplatingitsinvestmentisverylarge,buttheoreticallypossibletocalculate(AnilAmbaniestimateditat
Rs37,000crore7,orRs370billion).Onthesecondcount,i.e.,RILsfailuretoreturntheexcessarea,
saystheCAG,Theunduebenefitgrantedtothecontractthroughthisirregularandincorrectdecisionis
huge,butcannotbequantified.
(ii)Inflatedprice:In2003,theNationalThermalPowerCorporation(NTPC),apublicsectorbodywhich
suppliespowertostateelectricityboards,invitedbidsforthesupplyofnaturalgasforitsthermalplants.
RILwonwithanoffertosupplygasat$2.34permillionBritishthermalunits(mBtu)for17years.When
theAmbanibrothersdividedthefamilyempirein2005,Mukeshgotcontrolofthepetroleumandnatural
gasdivision,whileAnilgotcontrolofthepowerdivision.Aspartofthesplit,MukeshagreedtosupplyAnil
gasforhispowerunitsatthesamerateasitwastobesuppliedtotheNTPC.
Later,takingadvantageoftheriseininternationalgasprices,RILrenegedonitsLetterofIntenttosupply
NTPCat$2.34/mBtu,andproposedasteepincreaseinthepriceatwhichitwouldsupplygasfromtheD
6field.TheGovernmentpromptlyformedanEmpoweredGroupofMinistersinSeptember2007,which
approvedanincreaseto$4.20/mBtu.InthisfashiontheGovernmentunderminedthecaseofitsown
publicsectorunit.Theargumentonthebasisofwhichitdidthiswasingenious.Divertingattentionfrom
NTPCscase,itfocusedinsteadonAnilAmbanisclaimthatheshouldreceivegasat$2.34,accordingto
thefamilyagreement.TheGovernmentnowrighteouslydeclaredthatthecountrysnaturalresources
werenottheprivatepropertyoftheAmbanistobedividedbetweenthem,butbelongedtothecountry,
andhenceitwastheGovernmentthatwouldsetthepriceofgas,inordertoclaimthepublicexchequers
rightfulshareoftherevenues.ThisargumentmighthavecarriedmoreweightiftheGovernmenthadnot
agreedtoRILsinflationofitsinvestment(withoutevenanofficialauditofRILsexpenditures!),thus
reducingtheGovernmentseffectiveshareoftherevenues.
Governmentofficialsdidnotneedtotaxtheirownbrainstothinkupthisargument:Ashasnowbeen
confirmedwiththeleakoftheRadiatapes,itwasMukeshAmbanislobbyist,NiraRadia,whoplugged
thenationalresourcesline.InherconversationwithVirSanghvi,leadingjournalistandmediaadviser
totheHindustanTimes,shecomplainsthattheBombayHighCourtverdictinfavourofAnilAmbaniisa
verypainfulthingforthecountrybecausewhatisdoneisagainstnationalinterest.Sanghviassuresher
hewillplugthislineinhiscolumn:Thatmessagewewilldo.Thatallocationofresourceswhichare
scarcenationalresourcesofapoorcountrycannotbedoneinthisarbitraryfashiontobenefitafewrich
people.However,Radiaisawarethisargumentcanbackfiresomeonemightquestionwhythefield
shouldbeinprivatehandsatall:

Sanghvi:SoIllmakethosepoints.Thepeople,becausethesystemissocorruptandopen
tomanipulation,bymanipulatingthesystem,bynotpayinganybodyyoucangethandson
resources.ThereforetheonlywayManmohanSinghhopestosurviveistogetahandleon
theresourcesandhavesomekindofwayofallocatingthemthatistransparent,fairand
perhapsdonebyhim.
Radia:ButthereyouwillbeattackingMukeshonly,no.
Vir:Why,why,why,explainthat.
Radia:Yousee,becausearesourcehasbeenallocatedtoMukeshinthiscase.

RadiathendictatesamorenuancedversiontoSanghvi:thedistributioncannotbedecidedbyafamily
MoU,butmustbedictatedbynationalinterest.Singhviphonesherlatertotellher:Wroteit...Ivedressed
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itupasapieceabouthowthepublicwillnotstandforresourcesbeingcornered,howwerecreatinga
newlistofoligarchs.Verynice,lovely,thankyou,Vir,repliesRadia.Notonlydidthislineofargument
dominatethemediadiscussionoftheissuethen,butitwasadoptedbytheSupremeCourtinits
judgmentontheAmbanivsAmbanicase,decidedinfavourofMukeshAmbaniinMay2010.
RadiathendictatesamorenuancedversiontoSanghvi:thedistributioncannotbedecidedbyafamily
MoU,butmustbedictatedbynationalinterest.Singhviphonesherlatertotellher:Wroteit...Ivedressed
itupasapieceabouthowthepublicwillnotstandforresourcesbeingcornered,howwerecreatinga
newlistofoligarchs.Verynice,lovely,thankyou,Vir,repliesRadia.Notonlydidthislineofargument
dominatethemediadiscussionoftheissuethen,butitwasadoptedbytheSupremeCourtinits
judgmentontheAmbanivsAmbanicase,decidedinfavourofMukeshAmbaniinMay2010.
RILadmittedinBombayHighCourtthatitwouldmakeprofitsevenatthepriceof$2.34/mmBtu.Infact,
accordingtothecalculationsmadebyAnilAmbanisfirm,RILscostspermmBtu,includingnotonlycapital
andoperatingexpenditurebutinterestcostandroyalty,cometojust$1.43.Thusat$2.34RILsprofit
marginwouldbeover60percent.8At$4.20,itwouldbeover190percent.
AccordingtotheNTPCchairman,thepricedifferentialbetweenthegaspriceof$2.34andthatof$4.20
wouldamounttoRs24,000crore(Rs240billion)over17years.Moreover,whereastheexistingcontract
withNTPCwasfor17years,RILnowproposedacontractforonlyfiveyears,allowingafurtherupward
revisioninthepriceatthatpoint.9RILsexecutivedirectorP.M.S.PrasadblithelysaysthatNTPCdoesnt
loseanything.ThereasonisNTPCbeingapublicsectorundertaking,forthemthefuelcostisapass
through.So,iftheybuyfuelatXdollars,thatXdollarswillbepassedbyNTPCtothestateelectricity
boards.10Thatis,itisnotreallyaproblemforNTPCassuch:eitheritwillresultinhigherpricesforthe
consumer,orincreasedlossesforthestateelectricityboards.
YetthelossesincurredbytheSEBsareroutinelytermedsubsidies,resultingfromfailuretohiketariffs
forexample,theEconomicSurvey201011callsforastrongpoliticaleconomydecisionbyallstatesto
reviseelectricitytariffstoeconomiclevelsandreducesubsidiesandcrosssubsidies.(p.262)Similarly,
naturalgasisafeedstockfortheproductionofureafertiliser,andaccountsfortwothirdsofitscost.Any
steepriseinthepriceofnaturalgaswouldeitherrequireahikeinureapricesorinfertilisersubsidy.
Betweenthempowerandfertiliseraccountforthreefourthsoftheconsumptionofnaturalgasinthe
country.SinceNTPCistoshelloutanaddedRs24,000crore(Rs240billion)onjustonefifthofthetotal
D6production,thetotalincreaseinD6revenuesasaresultofthepricehikewouldamounttoRs
1,20,000crore(Rs1.2trillion).11Thus,eveniftheGovernmentweretoincreaseitsrevenuesbycharging
moreforgas,itwouldultimatelyhavetoextracttheserevenuesfromtheconsumer,orpaylarger
subsidiesonpowerandfertiliser.ThesubsidytoMukeshAmbanihasbeenconvertedintoadefenceof
thenationalinterestbycontrast,therequiredhikeinthesubsidytotheconsumertooffsethikedcosts
willnodoubtbetermedunsustainable,inefficient,drainingresources,nottargetedatthedeserving
poor,andsoon.(Infact,therearesignalsinthemediaofanimpendingseriesoftariffhikesbystate
electricityboards,aswellasoffurtherfertiliserpricehikes.)
RILsgainsfromKGD6,aswellasfromotherblocks,arehuge.Whileoilandgasexplorationand
production(E&P)accountforlessthan6percentofRILslatestquarterlysales,theyaccountforalmost
aquarterofitsearningsbeforeinterestandtaxes(EBIT).12EarningsfromD6areprojectedtorise
steeplyinthecomingyears,asproductionrises.In2010,MorganStanleyattributedmorethanhalfofthe
targetpriceofRILssharestoitsE&Pbusiness.13InFebruary2011,RILannouncedthattheglobal
energygiantBPwouldbeinvesting$7.2billionfora30percentstakein23blocksoperatedbyRIL,
includingD6.BPannouncedthatithadvaluedRILsE&Pbusinessat$25billion(Rs1,12,500crore,or
Rs1.13trillion)GoldmanSachsanalystsputithigher,at$29billion(Rs1,30,500crore,orRs1.31
trillion).14
ApartfromtherevelationsintheCAGreport,afurthercontroversyhasrecentlyarisen:RILhas
deliberatelyviolatedtheinterimfielddevelopmentplanofKGD6,byrefusingtodrillthestipulatednumber
ofwells.Undertheplan,RILhadassuredproductionof62millionmetricstandardcubicmetresperday
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(mmscmd)byApril2011and80mmscmdby2012fromtwofieldsinD6block.Infact,thankstothe
shortfallindrillinganditsdeliberatepolicyofunderproduction,itisproducingonly42mmscmdfromthese
twofieldsmoreover,productionfromeventhesefieldshasfallenoverthelastyear.RILanditsCanadian
partnerNikoResourcessaythatitwilltakeaminimumof34months,andupto44months,toconnectthe
newwellsandstartproduction.15
RILstandstobenefitfromthisfallinproduction.RILwantsmuchhigherpricesforthegas,andgasprices
aredueforrevisiononlyin2014.Itsimplyrefusestopumpoutgasnowatlowerpriceswhenitcan
postponeproductionandsecurehigherpriceslater.Itisrevealingthat,evenasRILannouncedasharp
dropinproduction,andclaimedthatlessgaswasavailablethanearlierbelieved,itmanagedtosella30
percentstakeinallitsexplorationblockstotheglobaloilgiantBPforanattractiveprice.Accordingtoone
unnamedofficial,IfRILfindsitisabletoincreaseproductionwhenthepriceofgasisrevisedafter2014,
peoplemayaskwhetherBP,whichinvestedbillions,mighthavebeenprivytothiseventualre
discovery.16
AlthoughtheCentralBureauofInvestigationhasnowregisteredacaseagainsttheDGHandseveral
otherofficialsoftheDirectorateforfavouringprivatefirms,nocasehasbeenregisteredagainstthe
corporatechiefsandofficialswhohavebribedtheseofficials.Instead,onJune24,2011,inthewakeof
theleakoftheCAGreport,ManmohanSinghgrantedaprivateaudiencetoMukeshAmbanineitherthe
PMOnorRILofferedanydetailsofwhatwasdiscussed.Notasinglemajormediaoutletquestionedthe
proprietyofthePrimeMinistermeetingthePrimeAccusedinthisfashion.Rather,theycelebratedwhen,
onJuly22,theCabinetCommitteeonEconomicAffairs,headedbyManmohanSingh,clearedBPs$7.2
billioninvestmentin21ofReliances23oilandgasblocks,includingKGD6signallingthatthe
GovernmenthasnointentionofproceedingagainstRILinthematter.

*
III.Miningastransferofwealth
Suchtransfersofwealthtoprivatecorporatefirmsarestandardintheminingsector.Oneimportantform
ofthistransferiswhatiscalledillegalmining.Whilethetermsuggeststhatthisissomethingdone
surreptitiously,undercoverofdarkness,byfugitives,andonthemarginsofrespectable,legal,mining,
nothingcouldbefurtherfromthetruth.IllegalminingisoneofthegreatsuccessstoriesofIndiasexports
anditscorporatesectorinthelastfiveyears.Accordingtothereportofthesecondreportofthe
KarnatakaLokayuktaonillegalmininginKarnataka,illegalexportsofironorefromthestatebetweenApril
2006andDecember2010amountedto3033milliontonnes.During200910,illegalexportsfromthis
smallregionmayhaveaccountedforabout16percentofIndiasironoreexports,17whichwereamong
thecountrysfastestgrowingexportsinthatperiod.Infact,allthiswasdone,notsurreptitiously,butunder
thecarefulsupervisionandprotectionoftheconcernedGovernmentauthorities.Inthewordsofthe
KarnatakaLokayukta,SantoshHegde,

Imagine,inonenight,nearlyathousandvehiclesgowithoutproperpermittoaportand
exporttheironorewithoutproperpermit.Allthisissupervisedbytheforestdepartment,by
theminingdepartment,bythepolicy,bytheroadtransportdepartment....Thereisa
checkposteverywhere,butnobodystopsthem.Attheport,youhavetoshowtheport
securityvaliddocuments,heretootheydontdoanythingatall.Thenthereareforest
officersinsidetheport,whoaresupposedtocheckwhetherthesemineralsarefromthe
forestarea,whethertheyhavetakenpermissionfromtheforestdepartmentornot.Rule
162oftheKarnatakaForestRulessaystheportauthorityhastosatisfyhimselfbeforehe
allows(theconsignment)togooutsidetheportarea.Thenthereisthecustoms
departmentwhichhastocollectthecustomsduty.Nobodydoesanything.18

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Thespurtininternationalpricesofsteelandironoreduringrecentyearsmadetheminingandexportof
highqualityironorefromBellary,TumkurandChitradurgadistrictsofKarnatakaverylucrative.Whilethe
averagecostofproductionofironoreataroundRs150pertonne,andtheroyaltiestobepaidtothe
GovernmentjustRs16.25pertonne,Indianexportpriceshaveaveragedaround$94(approximatelyin
thepastfiveyears19aprofitrateof2400percent.TheLokayuktareportstatesthat

TheGovernment[initsnotificationofMarch15,2003]dereservedforprivateminingan
areaof11,620sqkminthestate,meantforStateexploitation/miningbythepublicsector,
andnotifiedthesurrenderofanareaof6832.48hectaresofprimeironorebearing
lands,...whichhaspavedwayfordistributionofpublicassetstoselectprivateindividuals/
entitieswithoutregardtotheirprofessionalortechnicalorbusinessbackground.Theentire
exercisewasundertakeninamannersoastobenefitonlyaselectfew
individuals/entities....[I]nthenameofissuingtemporarytransportationpermitstoliftand
transportironoreinpattalands(whichbyitselfisnotpermissibleinlaw),largescaleillegal
miningactivitywasallowedtobecarriedoutforcertainperiod,evenintheforestareas,
havingnolinktothesurveynumbersofpattalandsandfortransportationoftheillegally
minedorefromtheforestareasonthestrengthofsuchforestpasses/transportpermits....

TheBellarybrothers,Janardhan,Karunakar,andSomashekharReddy,aretheleadingillegalmine
ownersinKarnataka,andalsoarecoownersoftheObalapuramMiningCorporation(OMC),through
whichtheycarriedouttheirexportsoftheoreillegallyminedinKarnataka(theOMChasalsobeen
engagedinillegalmininginAndhraPradesh).Twoofthemareministersinthestatecabinet(one,
conveniently,istheministerinchargeofBellarydistrict)theyaremajorfundersoftheBJPinKarnataka
andtheirpatronistheBJPleaderSushmaSwaraj,leaderoftheOppositioninParliament.In2009,they
blockedanattempttocurbtheirpowerbythreateningtobringdownthegovernment,forcingthechief
ministertoretreat.ThechiefministerhimselfsoonjoinedthepayrolloftheReddybrothers.Socomplete
wastheruleoftheBellarybrothersthatwhenthechiefconservatorofforestsvisitedthedistrictto
investigatetheillegalmining,oneofthebrothersaskedhimwhetherhehadtakenthepermissionofthe
ministerinchargeofBellarybeforevisitingthedistrict.Indeed,HegdetitlesachapterofhisreportThe
RepublicofBellary.
Muchofthemoney,itwouldappear,hasleftthecountry.Thereportallegessystematicunderinvoicing
(understatingofthevalueofexports,sothataportionoftheproceedscanbeparkedinforeignaccounts),
andprovidesthetrailoffirmssetupbytheReddysintaxhavenssuchastheVirginIslandsinthe
CaribbeanandtheIsleofMan(Britain).
Karnatakaaccountsforonlyapartoftheillegalminingofironoreinthecountry.Therearemajormining
scandalsinatleastfivestatesKarnataka,A.P.,Orissa,Jharkhand,andChhattisgarh.TheAndhra
Pradeshchiefminister,Y.S.R.Reddy,wasapartneroftheBellarybrothersintheObalapuramMining
Company,locatedinAnanthapurdistrict,A.P..AfterY.S.R.Reddysdeath,theA.P.governmentsuspended
theminingleasesoftheOMCandbegananinvestigationintoillegalmining.Theformerchiefministerand
minesministerofJharkhand,MadhuKoda,isbeinginvestigatedforreceivingbribesconnectedtomining
intheorerichstate.RaidsbytheEnforcementDirectorategatheredevidenceindicatingthathehad
amassedafortuneofRs4,000crore(Rs40billion)inhisshortspellaschiefminister,muchofwhichhe
hadsentabroad.Hiscommissionswouldhaveonlybeenaveryminorshareoftheprofitsofthemine
operators.Inotherwords,thechiefministersofatleastthreestatesKarnataka,A.P.,andJharkhand
weredirectlyprofitingfromillegalmining.
Afterlargescale,decadelongillegalmininginKeonjhardistrictcametolightin2009andcreateda
scandal,thegovernmentofOrissawasforcedtotakesomeaction.Itstoppedworkat128mines
(including20inKeonjhar)forfailingtofulfillvariousstatutoryrequirementssuchasobtainingamining
licence,environmentalclearance,andsoon.Illegalmininghadbeengoingononsuchalargescalethat,
aftertheOrissagovernmentsaction,thedailyaverageloadingofironorerakesbytheEastCoast
RailwayinKeonjhardroppedfromfourtolessthanone.Productioninanumberofsteelplants,including
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TataSteel,washitbytheclosureofillegalmines.Alaterrelaxationbythestategovernmentprovided
themrelief.TheSupremeCourtsorderinJuly2011suspendingminingoperationsinBellarydistricthas
badlyhitanumberofsteelfirms,includingJSW,whichclaimstobethecountryslargestprivatesector
steelproducer(intermsofcapacity)andisownedbythefifthrichestIndian,SavitriJindal(motherof
SajjanJindal).TheLokayuktasreporthasalsolevelledchargesagainstAdaniEnterprisesLtd(AEL),
ownedbythesixthrichestIndian,GautamAdani,andSesaGoa,ownedbythe12thrichestIndian,Anil
Agarwal(VedantaResources).
Therearereportedlynearlytwiceasmanyillegalminesinthecountryaslegalones.20Buteventhismay
notinitselfindicatethescaleofthescam.Legalminesareusedasacoverforillegalminingdigging
deeperthanthepermitted6metres,encroachingbeyondtheareaofthemine,extendingintoforest
areas,extractingbeyondtheamountsanctionedbytheIndianBureauofMines,miningaftertheexpiryof
thelease.HegdedescribesthemodusoperandiinBellary:

Rightfromthetimewhenaminingleaseisappliedfor,therearecertainguidelinesunder
theCentralandthestateenactments.Atthatstageitself,theyhavetogiveasketchofthe
areawheretheyaregoingtomine.Ifoundoutthatsometimestheareashavenothingto
dowiththesketchthataregivenwiththeapplications.Nobodycrosschecksthesethings.
Therefore,thisisthefirststagewhereillegalitytakesplace.Thentheytakethepermission,
say,for150hectares.Those150hectaresmaybeinaprohibitedarea,likeaforestarea.
Buttheyshowitasarevenuearea,gototheforestareaandstartminingthere.Therefore,
youdegradetheforest.ThenthereareIndianBureauofMinesrulesandregulationswhich
controlthetypeofminingyoucandolike,youcanotgomorethansixmetresbecauseit
maybedangerousecologically.Buttheydontcare.Therefore,wheretheyareallowedto
take100metrictonnes,theywilltakeout1,000metrictonnes.Theentireareasurrounding
theminingareaistotallydevoidofgreeneryandhasnoagriculturalactivity.Peoplethere
havenoothervocation.Godknowswhatwillhappentothemwhentheminingisstopped
orcontrolled21

Anindicationofthescaleofillegalminingisthat27,000casesofillegalminingwerereportedintheperiod
AprilSeptember2010aloneinthatperiod,just900oddFirstInformationReportswerefiled,orabout3
percentofthecasesthefinesrealisedwerejustRs94crore(Rs940million).22
Inbrief,illegalminingoperatesunderthebenigngazeandactiveprotectionoftheauthorities.Theprofits
ofsuchminingareagiftor,touseManmohanSinghsterm,achannelofsubsidytothemineowners.
However,itisnotonlyillegalminingthatconstitutesagiftorsubsidy,butlegalminingaswell.For
example,till2009,therateofroyalty(thepaymentbytheminertothemineralrightsholderhere,the
State)wasjustRs27pertonneforthebestgradeofironorelumps.Despitethefactthatpriceofironore
rosefromRs300pertonnein200203toRs5,0007,000pertonnein200506,royaltyremainedatthe
sameflatrate.Since2009,ithasbeenchangedto10percentofthesalepriceonanadvalorembasis.23
Giventhatallothercostsamounttoonly1020percentofthecurrentsalepriceofironore,thistoois
verygeneroustotheminers.

Forthecaseof[theKoreansteelgiant]POSCOinOrissa,itisbesttolookatsomespecific
numberstounderstandtheamountofprofitsinvolved.LetusassumethatPOSCOscosts
forextraction,processingandtransportfortheironorewouldbedoublethosein
Karnataka,thatitwillpayanadvaloremroyalty(royaltybasedonvalue),currentlyfixedat
anabsurdlylowrateof10percentofthepreshippingprice,andthatthemarketpriceit
getswillbethehistoricallylowpriceofRs4,500pertonandnottheRs7,250perton
projectedbyUNCTADortheBHTBillitonestimateofRs10,000for2011.Basedonthis,
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POSCOstandstomakeaprofitofRs3,330perton.For20milliontonsperannumthat
comestoprofitsofjustoverRs6,500crores(Rs65billion)peryear(about1.5billion
USD).So,asonecanseefromthecalculationsabove,POSCOwillrecouptheentire$12
billioninvestmentthatitisprojectedtomakeoverthenext30yearswithinthefirsteight
yearsofoperation.Afterthat,evenifithastopaytaxes,everythingitmakeswillbepure
profit,whichcanbeconservativelyestimated(basedonthediscussionabove)tobeat
leastRs6,500crore(Rs65billion)peryear,andislikelytobemuchhigher,yearafteryear
forthenext20plusyears,andpotentiallyforthenext40plusyearsifPOSCOexercisesits
optiontoextendtheprojectforanother20years.Andallthisfromtheminingoperations
alone.
EventhisisnottheentirestoryinPOSCOscasethegiveawayisevenmoreegregious
becausenotonlyisthestatededicating600milliontonsofironoreforPOSCOsexclusive
usefor30yearsatthesteelplantitplanstobuildinJagatsinghpurdistrict,butthe
agreementintheMoUalsoallowsPOSCOtoextractandexport400milliontonsforuseat
itssteelplantsinSouthKorea.Thatmuchorewillproduceenoughsteeltobuildanentire
citylargerthanDelhiandBombayputtogether,orreplaceIndianRailwaysentirerolling
stockaboutaquartermillionrailroadcarsand8,000enginesmorethan25times
over.24

TherearefurthersubsidieshiddenintheMemorandumofUnderstandingbetweentheGovernmentof
OrissaandPOSCO:

TheMoUfurthercommitstheOrissagovernmenttobuildingmultipleroads,highways,and
railroadlinesforthebenefitofPOSCO....Similarly,notonlyarelimitsonPOSCOsuseof
watermissingfromtheMoU,theagreementallowsPOSCOtosetupitsownwatersupply
systemanddrawasmuchwaterasitneedsineffect,freewater.TheMOUevencommits
OrissatobuildingspecialpolicestationsjusttoprovidesecurityforPOSCOsfacilities!

POSCOmaymarkashiftfromonesortofgiveawaypermittingillegalminingtoanothersort,a
legalised,formalgiveaway.TheKarnatakagovernmenttooismovinginthisdirection,asevidencedbyits
GlobalInvestorsMeetinJune2010,whereitsignedMemorandaofUnderstanding(MoUs)withsteel
firmssuchasArcelorMittal,POSCO,andothersforRs2.2lakhcrore(Rs2.2trillion)ofinvestmentinsteel
plants,tobebasedinBellaryKoppal.ThelargestprojectisthatoftheReddybrothers,atRs36,000crore
(Rs360billion).Atthemeet,thestategovernmentannouncedironoreleaseson5,000acresinBellary,
withmoretocome.Asyetunknownishowitplanstoprovidewaterforthesegiantplantsinawater
scarceregion.Asforland,theKarnatakagovernmentannouncedthatithasidentified90,000acresfora
landbankforindustrialprojects,wherebylandisidentifiedandnotifiedforacquisitioninadvanceof
investmentacquisitionhasbeeninitiatedfor40,000acres.
*
Aproposalinfavouroftransparencyandefficiency
Itisstrikingthatinallthethreescams/subsidieswehavedescribedrelatingto2Gspectrum,KGD6,
andironoreminesthechannelofsubsidytothecorporatesectoristhetransferofnaturalwealth.The
advantageofthischannelispolitical:Theauthoritiescanclaimthattheyhaveobtainedthecorrectpriceof
theseresources,andthatthereisnosubsidy.
Inthissense,thismechanismissimilartotheprivatisationsofpublicsectorunits,allofwhichhavebeen
carriedoutatmuchbelowmarketprice,inmanycaseswithfreegiftsoflandandnaturalwealthaspartof
thedeal.Anyattempttoquestionsuchtransactionscanbemetwithabarrageofargumentsandfigures

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suggestingthat,infact,thepublicinteresthadbeenbenefited,thegainstotheprivatepartywerethe
resultofhisentrepreneurialdriveandinnovation,andsoon.
Thisparticularmodeoftransfertothecorporatesectorhasbeenthehallmarkoftheperiodof
liberalisation,ortheneoliberalera.Itisnotthatsubsidiestothecorporatesectordidnotexistbeforethe
initiationofreformsin1991forexample,unlimitedcheapbankcredit,investmentbypublicsector
financialinstitutionsinprivatefirms,subsidisedinputs/intermediatesfortheprivatesectorproducedby
publicsectorunits,guaranteedpurchaseoffertiliserataninflatedprice(arrivedatbygoldplatingfertiliser
investment),paddedexportincentives,andsoon.However,theywerepaltrycomparedtothepost
liberalisationgiveaways,particularlybecausethepostliberalisationgiveawaysfrequentlyinvolvethe
handoverofentireassets,naturalwealth,andsectors.Thusscamshavegrowndramaticallyinrecent
years,tothepointwherepeoplehavedifficultycomprehendingthesumsinvolved.
Inthatsense,giventheStatessocialobjectiveofenrichingamicroscopicsectionofsociety,thetransfer
ofnaturalwealthandpublicassetshasbeenaverysuccessfulpolicy.Ofthe55Indianbillionairesinthe
2010Forbeslist,almosthalfofthemareinvolvedinsectorswhichhavedirectlybenefitedfrom
privatisationandtransferoflandandnaturalwealth(ironandsteel,oilandnaturalgas,commodities,
miningandmetals,telecom,power,infrastructure,andrealestate).Between1996and2008,wealth
holdingsofIndianbillionairesareestimatedtohaverisenfrom0.8percentofGDPto23percentof
GDP.25ArecentstudyofUltraHighNetWorthIndividuals(withaminimumnetworthofRs25crore,or
Rs250million)puttheirnetworthat57percentofGDPin201011.26
However,aswehaveseenintherecentpast,thismethodhasitsdrawbacks.Allthreecasesdescribed
abovehavebecomethesubjectsofcontroversy.TheGovernmenthasbeenforcedtoorderthearrestof
severalprominentofficersoffirmsinvolvedinthe2Gcase.ACAGreporthasappearedregardingKGD6,
whichhasbeenthecauseofsomeembarrassmentfortheGovernment.TheBellarycasehasledtothe
resignationoftheKarnatakachiefminister(true,hewassucceededbyhishandpickedreplacement),the
suspensionofironoreexportsfromKarnataka,andpossiblecriminalcasesagainstanumberof
underlings.True,noneoftheseactionswillresultineitherpunishmentofthelawbreakers,anditdoesnot
appeartheGovernmentisevenconsideringforcingthefirmstoreturntotheexchequerthecash
equivalentofthesubsidy.Nevertheless,thesedevelopmentshaveledtoapartialbreakdownofthe
subsidymechanism.Moreover,theGovernmenthasbeenforcedtoappointacommitteetoformulatea
procedurefortheallocationofnaturalresources,whichmayintroducesomefurther,albeittemporary,
complicationsfordeliveringthesubsidy.
Now,againstthisbackground,werecommendthattheGovernmentprovidesubsidiesexplicitlytothe
corporatesectorthroughtheUnionBudget.Inonesense,ofcourse,italreadydoesso:TheBudget
papersforthelastfiveyearshaveprovidedaremarkabledocument,aStatementofRevenueForgone.
ThusinthelatestBudgetpaperswefindthat,intheyear201011,thetotalrevenueforgoneonaccount
ofspecialtaxrates,exemptions,deductions,rebates,deferralsandcreditsincorporateincometax,
personalincometax,excisedutyandcustomsdutyamountedtoRs511,630crore(Rs5.12trillion).Note
thatthisfigureisnotmuchlessthanthetotaltaxactuallycollectedthatyear(Rs710,543crore,orRs7.11
trillion).Withadmirableclarity,theStatementsaysthattheseconcessions

maybeviewedassubsidypaymentstopreferredtaxpayers.Suchimplicitpaymentsare
referredtoastaxexpenditureanditisoftenarguedthattheyshouldappearas
expenditureitemsintheBudget.Inthiscontext,thebasicissueisnotoneoftaxpolicybut
oneofefficiencyandtransparencyprogrammeplanningrequiresthatthepolicy
objectivesbeaddressedexplicitlyandprogrammebudgetingcallsfortheinclusionofsuch
outlaysundertheirrespectiveprogrammeheadings.Taxexpendituresarespending
programmesembeddedinthetaxstatute.(emphasisadded)

Accordingly,ifweincludedtaxexpendituresintheBudgetexpenditures,thefigurefortotalexpenditure
wouldriseby42percent.Thisformofsubsidywouldthenamounttoalmost30percentoftotal
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expenditure.
Takingacuefromthis,wesuggestthattheBudgetitselfexplicitlytransfersuchothersubsidiestothe
corporatesectorasarenowbeingchanneledthroughtransferofnaturalresources,privatisationofpublic
sectorcompanies,andthelike.Theadvantageswouldincludethefollowing:
i.Thesubsidywouldbedeliveredinamoretransparentandefficientway.Inthisway,itwouldnotbe
vulnerabletotheunseemlychargesbeinglevelledagainstthepresentsubsidymechanism.Forexample,
theentirecampaignofthemiddleclassanticorruptionbrigadeledbyAnnaHazarewouldbedeflated,
sincethetargetofthiscampaignisnottheeconomicpoliciesinfavourofbigcapital,butmerelythe
corruptimplementationofpolicies.Oncecorporatesubsidiesaremadetheexplicitobjectofpolicy,and
arescrupulouslyimplemented,itshouldevenbepossibletowinovermanyofthesecampaigners.
ii.Targetingsubsidiestotheultrarichposesnosignificantadministrativeproblems.TheGovernment
alreadyhasdatabasesofthecorporatesector.Moreover,theoverwhelmingbulkofthesubsidyistobe
targetedtothetop500firmsontheBombayStockExchange.Privatedatabasescouldbetapped:the
ForbeslistofIndianbillionaires,27theBusinessStandardbillionairesclub,28(containing657names),and
theclientlistsoffirmsservicingUltraHighNetWorthIndividuals(UHNIs).29
Comparethissimpleandelegantexercisetothegargantuan,messyexercisebeingattemptedbythe
UniqueIdentificationAuthorityofIndia(UIDAI)tofingerprint,irisscan,andonedayDNAsampleevery
Indianinanefforttorestrictfood,fertiliser,fuel,powerandothersubsidiestoasmallerandsmallercircle.
TheUIDAIisnowworkingonschemestoconvertsubsidiestocashtransferstothepoor,who,eventhe
Governmentadmits,numberinthehundredsofmillions.Bycomparison,cashtransfersto657,oreven
60,000,individuals,ischildsplay.Therecipientwouldbegiventheoptionofreceivingthecashtransferin
Indiaorabroad(where,accordingtorecentestimates,theIndianrichhave$462billioninillicit
accounts30).
iii.Ifourproposalisadopted,leakagetonontargetedsectionscanbeminimised.Undertheexisting
mechanism,thetargetedsectionsareforcedtopayvariousofficialswhosecooperationisrequiredto
clearillegalactivity(economiststermtheactivityofofficialsrentseeking).TheLokayuktareportinto
illegalmininginKarnatakaprovidesmanysuchinstances,oneofwhichforcedtheresignationofthechief
ministerofthestate.AcomputerseizedfromanofficeofAdaniEnterprisesLtd(AEL)revealedthat
paymentstoofficialsweresosystematicastobetheprideofanyaccountsdepartment.Onlypaymentsto
MembersofParliamentandoftheLegislativeAssemblywerelesssystematic,beingmadeonceina
whileinalumpsumamount:

InregardtoPortDepartment,itisstatedthatthepaymentsweremadeonShipwisebasis
anddifferentrateswerefixedfordifferentlevel(s)ofofficer....Further,thegeneralmodeof
paymentwere:PortDirector,Rs50,000pershipsailedPortOfficer,Rs25,000pership
sailedDeputyPortConservator,Rs5,000pershipmentandPortstaffRs5,500pership
sailed....paymentstoCustomsofficialswasdoneonthebasisofnumberofshipments,as
wellas,quantityexported.ThegeneralmodeofpaymenttoCustomsDepartmentwas,
before26/5/2006,Rs12,000pershipbetween26/5/2006and11/1/2008,Rs6,000per
shipplusRs.0.50permetrictonneandfrom11/1/2008andonwards,Rs.0.50permetric
tonneplusRs1,00,000quarterlytoACCustom.InregardtoPolice,itisveryinterestingto
notethatSuperintendentofPolicereceivesRs1,00,000bimonthlyAdditional
SuperintendentofPolicereceivesRs25,000monthlyDeputySuperintendentofPolice
receivesRs10,000monthlyCircleInspectorofPolicereceivesRs14,000monthlyand
Outpostreceives2,000monthly.MinesandGeologyofficialswerepaidinlumpsum
amountatregularintervals.MLAs/MPswerepaidonceinawhileinalumpsumamount,
particularsofwhichareatAnnexure6ofChapter2....Thepaymentofbribeamountsto
differentdepartmentshasprogressivelyincreasedfromtheyear200405to200708,
whichwasRs23lakh(1lakh=100,000)intheyear200405Rs48lakhintheyear2005
06Rs66lakhintheyear200607Rs1.28crore(Rs12.8million)intheyear200708.
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Theconsequentleakageofsubsidyinvolvedissubstantial.TheLokayuktareportnamesliterallyhundreds
ofofficialsandpoliticiansinvolvedintheillegalironoreexportsfromKarnataka.Further,thewhole
processofbribingcansullytheimagesofcorporatechieftainsas,forexample,whenRatanTata
recentlyattemptedtoexplaintheRs20crore(Rs200million)paymentaTatatrustwastomaketoa
hospitalassociatedwiththeerstwhileTelecommunicationsMinisterasamerecharitabledonation.
Counterarguments
Thereare,however,substantialargumentsagainstourproposal.Forone,itmayemergethat,ifthe
Budgetweretoconvertallsuchassettransfersintoexplicitcashpayments,aswellasrecordalltax
concessionsassubsidypayments(alongthelinesmentionedearlier),therewouldbelittleroomleftfor
anyotherexpenditureintheBudget.SuchastarkrevelationoftherealcharacteroftheentireBudget
exercisewouldcreatepoliticalturmoilandmakeitdifficulttorule.Soitisnecessary,attheveryminimum,
tosetasideenoughBudgetaryfundsformilitaryandpoliceexpenditure.
Asecond,equallyweighty,objectionisthattheamountsthatcanbetransferredbywayoftransferring
assetsisfargreaterthancanbeachievedbyBudgetarytransfers.Budgetarytransfersdependon
Governmentrevenuesorborrowings,whichsetsalimitonthesizeoftotaltransfers.Whereasassets
representeithertheaccumulationofmanyyearsofpastlabour(suchasafactoryorbuilding),ornatural
wealth(land,minerals,rivers,airwaves)whichcannotbegeneratedbyhumaneffort,andforwhichthere
isthereforenoclearmethodofvaluing.Giventheenormousurgencywithwhich,inthepresentphaseof
boththeIndianandglobaleconomies,therulingclassesareouttoenrichthemselves,mereBudgetary
transfers,whileausefulsupplement,donotsuffice.Wholesaletransfersofassetsarerequired,
regardlessofthefactthattheymaybeseenaspredatory,andsparkpopularopposition.
Athirdimportantcounterargumentisthatthepoliticiansandofficials,orthenetasandbabusasthe
mediamockinglycallthem,cannotbesoeasilyexcluded.Rather,theyconstituteanindispensablepartof
theentireneoliberalprogramme.Whiletheprogrammenominallycallsforlaisserfaireandtheretreat
oftheStatefromtheeconomy,infactthenetasandbabushaveacquiredevengreaterimportance.
Underthepresentdispensation,theyarerequiredtonavigatetheentireexerciseofstrippingthecountry
ofitsassetsandtransferringtheseassetstochosenhands.Thisisafarmorechallengingtaskthantheir
roleinthepast.Therewardtheyobtainfortheirservicesisarelativelysmallpercentage(except,of
course,whenthepoliticianandthecorporatechieftainarecombinedinthesameperson),andcannotbe
seenasaninefficiency.Itmustberememberedthatamidthishecticactivitytheyhavealsotomaintain
socialorder.
Whileweacknowledgetheweightoftheseobjections,weneverthelessplaceourproposalinthepublic
domainwiththehopethatitwillgiverisetodebate.

Notes:
1.TheactualfigureisRs60,000crore.Acrore=10million.(back)
2.Strictlyspeaking,themedianconsumption,butforpeopleatthisincomelevelthereisnodifference
betweenincomeandconsumption:theyspendalltheyearn.(back)
3.WhentheInvestmentMultiple(theratiooftheaccumulatednetcashincometotheaccumulated
capitalexpenditure)isbetween1.52,theGovernmentsshareofrevenuesrisesto16percentfrom2
2.5,28percentandbeyondthat,85percent.AccordingtoAnilAmbani
(http://rnrl.in/pdf/20.Analyst_ppt.pdf),theinflationofthecapitalexpenditurewouldresultinthelaststage
(whentheGovernmentwouldreceive85percent)beingpushedbackbythreeyears,fromApril2015to
April2018.(back)
4.EconomicTimes,22/6/11.(back)
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5.Indeed,evenearlier:ACPI(M)MP,TapanSen,hadwrittentothePrimeMinisterin2007warningofthis,
andaformerUnionrevenuesecretary,E.A.S.Sarma,haddonesimilarly.(back)
6.Anotherprivatefirm,CairnIndiaLtd,wasallowedbytheDGHtoexpandthecontractareabymore
than1,600sqkm,fornovalidreason.(back)
7.Seehttp://rnrl.in/pdf/20.Analyst_ppt.pdf.(back)
8.Ibid.(back)
9.DipankarMukherjee,WithoutprejudicetotheEGoM,PeoplesDemocracy,21/5/10.(back)
10.GovernmentdelaysrestrictingRILsproduction:Prasad,Mint,2/9/09.(back)
11.DipankarMukherjee,op.cit.(back)
12.http://www.ril.com/rportal1/DownloadLibUploads/1295611784359_Q3PR21012011.pdf.Figuresarefor
thethirdquarterof201011.(back)
13.TheGreatGasHunt,BusinessWorld,19/4/10.(back)
14.BusinessStandard,23/2/11.OneshouldmentioninpassingthatanotherofRILsE&Passets,the
PannaMuktaoilfield,isoneofthemostbreathtakingscandalsofthe1990s.Thisfield,discoveredand
developedbyONGC,wassimplyhandedovertoaconsortiumofRelianceandEnronwithouteven
recoveryofONGCscosts.ReliancesuppliedthecashnecessaryfortheCongressgovernmentof
NarasimhaRaotosurviveaconfidencevotethewellknownJMMbriberycase.(back)
15.Mint,8/6/11.(back)
16.Hindu,12/6/11.(back)
17.KarnatakaLokayukta,SecondReportonIllegalMining,p.22,andEconomicSurvey201011.(back)
18.FinancialExpress,20/7/10.(back)
19.SecondReportonIllegalMining,p.22.(back)
20.AsofMarch2009,therewere9415miningleasesformajorminerals(excludingcoal)inthecountry
(AnnualReport201011,MinistryofMines).AParliamentarycommitteeonillegalminingidentified14,504
illegalminesin2005.(Frontline,16/7/10)(back)
21.FinancialExpress,20/7/10.(back)
22.AnnualReport201011,MinistryofMines.(back)
23.MineralRoyalties,IndianBureauofMines,2011.However,itappearsthatthesalepricetakenforthe
advaloremcalculationisnotlinkedtoanythirdpartypricethismayallowminerstounderstatethevalue
topaylowerroyalties.(back)
24.IronandSteal:ThePoscoIndiaStory,MiningZonePeoplesSolidarityGroup,October2010,
http://miningzone.org(back)
25.M.Walton,Inequality,RentsandtheLongRunTransformationofIndia,2010,unpublished,citedin
WorldBank,PerspectivesonPovertyinIndia:StylizedFactsfromSurveyData,2011.(back)
26.http://www.crisil.com/research/researchreportuhni.html(back)
27.http://www.forbes.com/wealth/billionaires/list?country=66(back)
28.http://www.businessstandard.com/india/news/chargetheentrepreneurs/425300/(back)
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29.http://www.crisil.com/research/researchreportuhni.html(back)
30.DevKar,TheDriversandDynamicsofIllicitFlowsfromIndia,19482008,November2010.(back)

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