Tuesday, August 21, 2012

CAG reports turn the light on private sector as well

This piece appeared in the Aug 21, 2012 Mumbai edition of DNA
Corruption is the big issue of the day and it needs to be highlighted, exposed and those who indulge in it shamed. So far, civil society activists and the opposition parties have used it as a legitimate political weapon to beat the government. It would perhaps be cynical to ask if all the fights against corruption against had any impact and whether the levels of corruption have gone down after each well fought battle. Fumigation of corruption is necessary however limited its positive impact may be. The CAG reports on coal block allocation, on ultra-mega power projects and on Delhi international airport dealings tell their won sordid story which goes beyond politicians and governments. It is the involvement of so many from the private sector who seem to be seeking favours, concessions from the governments in what has come to be known as crony capitalism. Captains of industry and business will have to join the debate on corruption as well and create guidelines for themselves in terms of good practices of corporate governance and the much vaunted corporate social responsibility.
With regard to the Ultra Mega Power Project at Sasan, the CAG report notes that the Madhya Pradesh chief minister requested the central government to allow Reliance Power Limited (RPL) to use the excess coal in another place, and that the Empowered Group of Ministers headed by Pranab Mukherjee had given the permission for that. The basic questions arise: why did the Madhya Pradesh chief minister, BJP’s Shivraj Singh Chauhan, made this request when coal as a major mineral is a central subject, and why did the Mukherjee-led EGOM gave it special attention and agree to it? Is it not necessary to write into the contracts/agreements ways to deal with such exigencies? This requires a broader debate on framing fair rules and it is not enough for the BJP and the Congress, the central and the state government to blame each other.
One of the underlying themes of the corruption story is that of capabilities, speed of implementation of projects, lack of technology. These are aspects which the CAG reports touch upon and which deserve greater attention because that points to the greater obstacle to India’s speedy economic growth. It is not enough to desire growth – and for the moment we can ignore the bleeding heart liberals who cry out that growth is not an end-in-itself – because you need the capacity to achieve growth in terms of raising capital and in terms of technology.
The CAG report has noted in passing: “The rate of increase in production of coal by CIL during XI plan period remained far below the target envisaged by the Planning Commission. The low production was due to inadequate drilling capacities, backlog in overburden removal, mismatch between excavation and transportation capacities, low availability and under-utilisation of Heavy Earth Moving Machinery (HEMM) etc.” This should worry the policy makers and growth-seekers greatly. But it is unlikely to figure in any public debate. As our athletes cannot be expected to strike Olympic golds without adequate training and preparation, India cannot hope to achieve growth if it does not pay attention to building capacities.
In the CAG report on the ultra mega power projects, the strange story of how Ernst & Young were selected to be the consultants though its bid was higher “on the ground that they had advised on bid process  management  of a power project in Bangladesh,” and that it was later “debarred … for three years for their lapses in bid evaluation.”  This shows up again the lack of institutional capacity to evaluate on technical and financial grounds of big infrastructure projects. The country seems to lack the knowledge skills needed to do the job even of assessing the project and the qualification of the bidders.
The other interesting factor that emerges is that no company India has ever done something as big as an ultra mega power project, and that bidding requirements were rather unrealistic. It required that a company have the experience of developing a project whose aggregate capital costs were not less than Rs 3000 crore in the preceding 10 years. The RPL, the CAG report observes, “claimed experience of developing projects on additions to the fixed assets”. The fudging is a consequence that none of the giants of Indian private sector have any experience of working big projects. It shows a clear gap in capability, though it is open to debate as to reasons for this incapacity.
The Indian private sector cannot any more remain a passive spectator of the nation’s political squabbles and it cannot cosy up to the next electoral victor. If the private sector wants to grow and prosper then it must step out boldly to contribute to national development. The two are linked. The civil society and political parties will continue to engage in the battle of wits and morality, but the country does not have the luxury to wait for the battle to get before getting back to business.
The western economies do not offer much hope for Indian capitalists and industry giants. India is the place to be in because here is a country that is ready to grow. The CAG reports should open the space for debate on how India’s free enterprise has to evolve ways of being part of the economic work in progress that India is.

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