With onion touching Rs 100 per kg, food security is a joke

Onion_on_WhiteVivek Kaul 
Rahul Gandhi, aspiring politician and vice-president of the Congress Party, recently said that his mother cried when she couldn’t cast her vote on the Food Security Bill. Of course, the tears of a mother are precious to any son. But what about the tears in the eyes of the aam aadmi as onion prices touch Rs 100 per kg, in some parts of the country?
As per the recently released wholesale price inflation numbers, the price of onion has risen by 323% in the last one year. Vegetable prices during the same period went up by 89.37%. Fruits were up at 13.54%. And all in all food prices were up by 18.4% in comparison to the same period last year.
So why have onion prices been rising at such a rapid rate? Research Analysts Neelkanth Mishra and Ravi Shankar have some sort of an answer in a report titled 
Agri 101: Fruits & vegetables—Cost inflation dated October 7, 2013A few states dominate the production of vegetables. “In particular, Maharashtra dominates the onion trade (45% of national production by value), while West Bengal produces 38% of India’s potatoes, 49% of India’s cauliflower and 27% of India’s aubergines (brinjals),” write Mishra and Shankar.
And it is this concentration that creates problems. As the Credit Suisse analysts point out “This concentration creates problems in generating a nationwide supply response in case a particular geography sees bad weather or any other disruption (e.g., onions in Maharashtra). This also drives significant variation in prices across the country.” Rains had damaged the 
rabi crop of onions, which is produced between March and May. The kharif crop of onions has also been damaged by unseasonal rains. This crop starts coming into the market by the end of September.
But has this led to a shortage of onions in the country? R P Gupta, director of National Horticulture Research & Development Foundation 
told the Week magazine recently that “I have been saying since July that there is no shortage of onion in the country..Official figures show that 27.5 lakh metric tonnes of onion were stored during February and May. Monthly consumption of the country is only 7-8 lakh tonnes per month…. So, where was was the problem of shortage?”
The only possible explanation is hoarding by traders in the key onion producing state of Maharashtra. As is well known the Agricultural Produce Marketing Committee (APMC), which runs the onion trade in Maharashtra, is largely said to be controlled by Sharad Pawar’s Nationalist Congress Party.
As the Week article points out in the context of the Lasalgaon mandi in Nashik, Asia’s largest wholesale market for onions “Powerful traders…manipulate the market. They book stocks from farmers at low prices, much in advance. Thousands of tonnes of onions are hoarded to create a short-supply. And as the prices spiral up, the hoarded stocks are released. It was such an artificial scarcity that allegedly spiked onion prices to record highs. “Traders in Lasalgaon Agricultural Produce Market Committee alone earned more than Rs.150 crore in just four days (August 12-15) this year,” says Dr Giridhar Patil, a farmer-activist.” This explains to a large extent why onion prices have been high all through the year.
The supply chain for the onion to move from the farmer to the end consumer remains very weak. 
As a recent Wall Street Journal article pointed out “A cultivated crop by a farmer in a far-flung village goes through as many as four intermediaries before reaching the local vegetable market in a semi-urban or urban area. These middlemen, wholesalers, traders and commission agents, usually charge fees and analysts estimate that by the time the vegetables make it to the stands in a retail market, their price has increased by almost six times.” This explains to a large extent why at times there is no link between the wholesale price of onions and the final price at which you and me buy it at. s
The Times of India reports that on October 22, 2013, the average wholesale price of the new onion crop at Lasalgaon was Rs 3,900 a quintal. This was 37% cheaper than in the summer. Despite this, prices at the retail level have not dropped.
NCP boss Sharad Pawar, who also happens to be Union Minister of Agriculture, 
had said on September 17, 2013 that “There is a lot of talk about the rise in onion prices; however, when prices fall no one shows any concern for the farmers. When farmers are getting more money for their produce we should not complain.”
Now if onion is coming in at Lasalgoan mandi in Nashik at Rs 3900 per quintal or Rs 39 per kg, and selling in Delhi at Rs 100 per kg, how is the farmer gaining? As explained above, it is the middlemen who are making the bulk of the money.
In fact, a study commissioned by the Competition Commission of India(CCI) in 2012, came to a similar result. The study titled 
Competitive Assessment of Onion Markets in India found that “onion trade is unilaterally dictated by the traders and not farmers for the reasons: (i) Average farm size of onion growers is quite low. Unfavorable weather conditions and price risk for these small farmers resulted for a minimal role in price formation; (ii) Traders buy small lots from the market yards and pool the produce for sorting or grading at their packing houses and market different grades to different markets all over India. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of the farmers to make any dent in onion trading. Therefore, most of the trading is in private hands; (iii) Farmers generally take reference of the local markets‟ rates, while traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grades. This brings greater profits to them…(vi) Lack of capacity to conduct multiple roles (wholesaler and commission agent) prevents farmers and their organizations to compete with traders.”
Also, most farmers, unlike traders do not have storage facilities. So they end up selling onions as soon as they produce it. The Week report cited earlier points out “This year, however, almost 80 per cent of the rabi crop was bought by traders (in the Lasalgaon mandi) at Rs.800 to Rs.1,200 a quintal by February-March. So, only a maximum of 20 per cent of the total crop was left with farmers who had storage facility.”
In fact, these traders even collude to drive up prices. As the CCI study found out “Collusion was observed among traders in selected markets in Maharashtra and Karnataka, For instance, a visit to Ahmednagar APMC revealed that there was collusion amongst traders. While bidding on certain lots was taking place, traders started with about Rs 300 per quintal and kept bidding higher prices till one trader quoted Rs 400 per quintal and another bid at Rs 405 per quintal. The commission agent stopped the auction and produce was shared between two wholesalers. It should also be pointed out that in Vashi market about 60 per cent of farmers reported that sales were undertaken through secret bidding.” The APMC markets referred to above are controlled by the NCP.
So farmers are not the ones benefiting from an increase in onion price, even if Pawar wants us to believe that is the case. Also, even if one believes that the farmers in Maharashtra are benefiting what about farmers in other states of India? Aren’t they paying a significantly higher price for onions? The last that I checked Sharad Pawar was the agriculture minister of India and not Western Maharashtra.
The reaction of the government to this rise in onion prices has been very high handed. 
The telecom minister Kapil Sibal, when he was asked on September 17, if onion prices will rise further, had said “Why don’t you ask the traders this? The government is not the one selling onions,”.
This was the last thing one expected a senior minister in the UPA government, which has been very committed to the idea of food security, to say. Onion is an essential ingredient in almost all curry that Indians make, whether it is to cook vegetables or meat. And given that, it is an important part of food security.
Onion prices have rise at the rate of 323% per year. The vegetable prices have risen at the rate of 89% per year. The food security of the 
aam aadmi is in danger as the government sits around doing nothing as usual. Half of the expenditure of an average household in India is on food. In case of the poor it is 60% (NSSO 2011).
Rahul Gandhi 
in a recent speech in Madhya Pradesh had said “They don’t understand that one can’t talk of development when the stomach is empty.” He had also said that “we understand your hunger.” Does he?
Or does the government want to supply rice at Rs 3 per kg and wheat at Rs 2 per kg, to two thirds of the country, so that people can buy onions at Rs 100 per kg? The joke as usual is on us.
The article originally appeared on www.firstpost.com on October 23, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)

What Manish Tewari is trying to do is confuse us – like Sibal

Vivek Kaul
The urdu poet Bashir Badr once wrote “dil ki duniya purani dilli hai, job hi guzra hai usne loota hai.” (Loosely translated which means that the heart’s world is like Old Delhi, whoever has passed through has looted it).
The politicians who run the current United Progressive Alliance (UPA) operate out of New Delhi, and like the chieftains of the yore who robbed Old Delhi, they continue to rob New Delhi and in the process India.
One such robber politician is A Raja who sold 122 telecom licenses at Rs 9,200 crore in 2008, a price which was significantly lower than the price the government could have got if it had auctioned the licenses. The Comptroller and Auditor General(CAG) made four estimates of the losses on account of this. These losses worked out to Rs 57,666 crore, Rs 67,364 crore, Rs 69,626 crore and Rs 1,76,645 crore.
As is wont in such cases the media ran with the highest figure and put the losses on account of shenanigans of Raja at Rs 1,76,000 crore. But even a loss of Rs 57,666 crore was no small number.
The Supreme Court canceled these licenses. The government recently tried to auction these licenses again.  Its aim was to raise Rs 40,000 crore from these auctions. It managed to raise only Rs 9,407 crore.
This prompted Manish Tewari the newly appointed minister for Information and Broadcasting to ask “Mr CAG, where is the Rs 1.76 lakh crore?”
Tewari went on to add that “I think it is time for some serious introspection. It’s time the CAG introspects on his processes and it is high time that the BJP and some of the other opposition parties, which had made this their holy-grail and swansong of politics over the last two years, should publicly apologise.”
The comment is along the lines of Kapil Sibal’s famous zero loss theory on the CAG’s estimates of the losses to the government on account of Raja’s shenanigans. “The logic underlying this estimate is completely flawed. Government policy is formulated with a view to maximising public welfare, and not merely to maximise Government revenues. The pricing of different natural resources is often done in a manner that meets this objective,” Sibal had said justifying the decision of the government to sell telecom licenses in 2008 at the same price as they had sold in 2001. “No loss at all. Zero is the loss…It (the calculation made by CAG) has embarrassed the government, it has embarrassed the nation.”” Sibal declared.
But how does the government explain the fact that Unitech, a company which got the license in 2008, went around and sold 60% of its stake to Telenor for Rs 6,120 crore even before it had constructed a single tower to launch a mobile phone service. It had paid only Rs 1651 crore for the telecom licenses. Shouldn’t this money have realistically flown into government coffers?
So what can safely be said was that Sibal was essentially trying to complicate the issue in order to confuse the nation. As a recent profile on Sibal in the The Carvan magazine puts it “There was a method to Sibal’s madness. This was his opening statement before the court of public opinion, and he had unquestionably taken the strongest possible line in his client’s defence. That few seemed to believe him was beside the point. His audacity had muddied the waters just enough to introduce doubts in what had looked like an open-and-shut case, demonstrating that a sufficiently strenuous and elaborate defence of the indefensible could perhaps make it defensible after all.”
Manish Tewari is working along similar lines and trying to complicate the issue or as The Caravan puts it in Sibal’s case “muddle the water just enough”.
We need to understand a few things here to basically look through Tewari’s statement. CAG used various methods to arrive at the loss estimates that it did. For the estimate of Rs 1,76,645 crore, CAG used the prices that companies paid when the 3G licenses were auctioned in 2010. The logic being that if the telecom licenses had been auctioned in 2008 and companies had paid the same prices that they did for 3G licenses in 2010, the government could have made Rs 1,76,645 crore more than it actually did.
Similarly other ways were used to arrive at other loss estimates. Another loss estimate of Rs 69,626 crore was based on the price at which Unitech sold 60% of the stake in its telecom business to Telenor immediately after getting the telecom license in 2008.
So, yes, there was a loss to the government and the nation when A Raja sold off 122 telecom licenses for Rs 9,200 crore. There is no beating that irrespective of what Tewari now and Sibal earlier had to say.
Let’s come back to the recent telecom auction and the inability of the government to raise much money from it, something that prompted Tewari to ask “Mr CAG, where is the Rs 1.76 lakh crore?”
Just because the government couldn’t raise as much as it was expecting to from this auction does not mean that the way the government went around selling telecom licenses in 2008 was correct. Second, much has changed between 2008 and 2012. The finances of the Indian government are in a mess. Inflation and interest rates are high. And economic growth is stagnating. Hence, telecom companies are no longer in the mood to pay the high prices that they did for 3G spectrum in 2010. Also, if the government raised the kind of money that it did with the 3G auction in 2010, imagine the kind of money it could have raised had it decided to auction telecom licenses in 2008 when the financial crisis had not yet broken out, instead of giving them away on a first come first serve basis.
But Tewari is working along expected lines. He is a lawyer by qualification who was expected to muddle up things as a spokesperson for the Congress party. And he is working along similar lines after taking over as the minister for information and broadcasting, a post from which he can hope to effectively control opinion.
As Noam Chomsky, the world’s foremost living intellectual, points out in How the World Works “Ultimately, the governors, the rulers, can only rule if they control opinion…This is true of the most despotic societies and the most free… If the general population won’t accept things, the rulers are finished.”
In this day and age of the internet where it is very difficult to totally control opinion that is going around, the best a ruler can do is muddle the opinion and that is what Tewari is trying to do in this case.
Also having been in the party for too long Tewari has now tasted real power and is trying to do a Sibal. The Caravan in its recent profle of Sibal wrote “Among the country’s chattering classes, his innumerable television appearances and indefatigable zeal for defending the indefensible have made him a favourite target for mockery and derision—in which he typically appears as a caricature combining the worst qualities of lawyers, politicians and out-of-touch elites. But Sibal is well aware that his prominence within the party depends on these over-the-top performances, and it could be argued that no other politician has taken better advantage of the present age of around-the-clock television shoutfests and exaggerated sound-bites.”
This could have easily been written for Tewari as well.
The article originally appeared on www.firstpost.com on November 19, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])

Will Vadragate turn out to be Sonia’s Bofors?

Vivek Kaul
Roti tawa par, janta party hawa main” was one of the slogans going around in the Lok Sabha elections that happened after the assassination of Indira Gandhi. Riding on the honest image of Rajiv Gandhi (Indira’s son and a former Indian Airlines pilot) and a sympathy wave due to the assassination of Indira Gandhi by her bodyguards, the Congress party won more than 400 seats in the lower house of Indian parliament.
This was an unprecedented majority for the Congress party, something it had not managed to achieve even under the leadership of Jawahar Lal Nehru, Rajiv’s grandfather and India’s first Prime Minister. Neither had it managed such a huge mandate from the people of India under the leadership of Indira Gandhi.
But Rajiv would soon squander away these gains. As Aarthi Ramachandran writes in Decoding Rahul Gandhi “The Rajiv Gandhi government was bogged down by allegations of kickbacks to the tune of Rs 64 crore paid to middlemen in the purchase of Swedish Bofors guns. The government’s ‘stonewalling’ of demands to bring guilty to book in the Bofors case and other corruption scandals destroyed Rajiv’s image as Mr Clean. Ramchandra Guha in India After Gandhi says the ‘stonewalling prompted speculation that the middlemen were somehow linked to the prime minister himself’.”
The impact of this on the Congress party was huge. It lost the 1989 election to an alliance of Janata Dal and the Bhartiya Janta Party (BJP). Rajiv Gandhi had to become the leader of the opposition. A party which had more than three fourths of the seats in the Lok Sabha was thrown out of power.
It is often said that ‘perception is reality’. Rajiv Gandhi losing the 1989 Lok Sabha election because people ‘thought’ he was involved in the Bofors scandal and may have received a part of the kickbacks. And this perception was formed after his government stonewalled all attempts of bringing the guilty to book.
A similar situation seems to be now brewing up in the Robert Vadra-DLF case. A string of lawyer ministers from the Congress have jumped into the ring in order to defend Robert Vadra and would like the world at large to believe that there is no truth in accusations being hurled at Vadra (and indirectly Sonia Gandhi) by Arvind Kejriwal and his associates.
Let us sample some of the statements that have been made by these lawyer ministers. Kapil Sibal, one the country’s top practicing lawyers before he became a full time politician and currently the Minister of Human Resource Development and Minister of Communications and Information Technology recently came to the defence of Vadra. “Allegations are happening 24×7. It is a daily phenomena just like 24×7 television news channels,” he said.
On television Vadra has been defended by Jayanthi Natrajan who other than being the Union Minister for Environment and Forests also happens to be a lawyer having got her law degree from the Madras Law College. Vadra has also been defended by Manish Tewari, a Congress spokesperson, and a lawyer. Tewari felt that prima facie the charges made by Kejriwal and company were found to be ‘untruth, innuendos and lies’.
HR Bhardwaj, currently the governor of Karnataka, and a former law minister also came to the indirect defence of Robert Vadra. “Many allegations were levelled against the Gandhi family even in the past. Indira Gandhi was also attacked. But she had a towering personality and fought back. Morarji Bhai (late Prime Minister Morarji Desai) made so many cases against her but they fell like nine pins,” he told reporters,” he recently told the media. And I thought governors were meant to be above politics and political parties.
Rashid Alvi, one of the spokespersons of the Congress Party on one occasion brushed aside the accusations hurdled at Vadra by Arvind Kejriwal and company as a “part of a well-planned conspiracy not against an individual but against the Congress and its leadership.”
On another occasion on live television he dubbed Kejriwal’s accusation as a publicity stunt and questioned the veracity of the documents put out by Kejriwal by saying “who will decide that the documents shown by Kejriwal are genuine or fake.”The website of the Parliament of India lists his profession as an advocate in the Supreme Court.
P Chidambaram, the Union Finance Minister who also happens to be a lawyer said “All I can say is at this moment these allegations pertain to transactions between two private persons or entities…. The individual (Vadra, son-in-law of Sonia Gandhi) has disclosed all these transactions in his income tax and other returns, and perhaps in the returns of the company.”
Veerapa Moily, another Lawyer and who is  the Union Minister for Corporate Affairs as well as Power, jumped to Vadra’s defence by saying “ I have already verified these allegations and no wrongdoings have been found in any of the six Robert Vadra-owned companies.”
What is surprising is that so many Congress lawyers have jumped to the defence of a “supposedly” private individual, Robert Vadra, and ruled out any wrong doing on the part of Sonia Gandhi’s son in law. The only thing that this ‘stonewalling’ has done is that it has built the perception among people that something must be wrong otherwise why are so many lawyer ministers and Congressmen jumping to Vadra’s defence.
In some cases the defence has looked very shaky. Let’s look at Alvi’s insinuation that the documents might be fake. And this comes from a man whose profession is listed as a Supreme Court lawyer. It is very easy to download balance sheets of even unlisted companies these days. This writer spent the whole of last week doing that by logging on to www.mca.gov.in and paying a Rs 50 charge for every Vadra company for which details were needed. So all one needs to know is the name of the company and it’s possible to get the details of that company. And in Vadra’s case it was pretty well known that he operated through Sky Light Hospitality Private Ltd a company in which he owned 99.8%.
Also Alvi should remember that Kejriwal is being advised by Shanti and Prashant Bhushan, two of the best lawyers in the country. Shanti Bhushan was even the law minister of the country at a certain point of time. Other than this Kejriwal himself must understand a thing or two about balance sheets having been an Indian Revenue Service officer till a few years back. He is also an IIT Kharagpur passout from the pre coaching schools era and that definitely means he is smart. And more than anything else why would anyone who is raising a serious banner of revolt against the incumbent government choose to do so on “fake” documents?
P Chidambaram wanted us to believe that the dealings were between a private company and a private individual. If that is the case why are so many lawyer ministers coming to the defence of Vadra?
Veerapa Moily jumped to Vadra’s defence by saying that there was nothing wrong in any of Vadra’s six companies. If he had read through the memorandum of association of Vadra’s Sky Light Hospitality carefully enough he would have realised that the company claims that it will carry out business as hotels, restaurants, lodges, ice-cream merchants, sweet meat merchants, milk manufactures, bakers, wine and spirit merchants etc.
But instead of doing all that Sky Light Hospitality primarily seems to be in the business of real estate having accumulated a slew of properties on the basis of a so called Rs 50 crore advance it got from a plot of land from DLF. As has been repeatedly pointed out Firstpost and other places in the media the dealings between DLF and Vadra appear murky. (You can read about it completely here, here and here). Sky Light Hospitality owns a 50% stake in Saket Courtyard Hospitality Ltd through which it runs one hotel in Saket, New Delhi, in parternship with DLF.
Vadra’s Sky Light Hospitality bought 3.5acres of land sometime in 2008-2009 (period between April 1, 2008 and March 31, 2009) at Rs 15.38 crore. In the same period DLF bought this land from Vadra for Rs 58 crore. The question is how did the value of the land go up nearly 3.7 times in such a short period of time?
Against this sale DLF gave Vadra an advance of Rs 50 crore. An advance is typically given for the short term and needs to be returned within a year. But this advance was sitting on Vadra’s balance sheet even as on March 31, 2011. So the advance given by DLF to Vadra was with Vadra for a period of greater than two years. This doesn’t sound like an advance at all. It seems more like an interest free loan being passed off as an advance.
DLF also said in its 6 October statement that “we wish to categorically state that DLF has given no unsecured loans to Mr Vadra or any of his companies.” The balance-sheet (dated 31 March 2010) of Real Earth Estates Pvt Ltd, another company owned by Vadra, shows a clear entry of Rs 5 crore as a loan from DLF.
Vadra used all these loans from Vadra to go on a property buying spree. Estimates made now suggest that the value of this property now runs into hundreds of crores. He also benefitted from parking this largely interest free money in fixed deposits and earning an interest from them.
Congress Party’s over defence of Vadra has not helped it at all. It has built the perception among people that there must be some hanky panky involved in the entire business. That being the case no other response could have been expected from a party that doesn’t really stand for anything except the Nehru-Gandhi family. Kejriwal has hit the Congress party where it hurts the most.
As Ramachandran writes “the Nehru-Gandhi family remained relevant within the Congress. In fact, it became more powerful as it was only the centre around which the entire Congress edifice could hold together. It was now an amalgam of pressure groups which were interested in power, and their one-way ticket to it was through proximity to the Nehru-Gandhi family.”
And it’s in times like these Congress leaders have to go through their agni parkiskha and show their loyalty to the Nehru Gandhi family. That’s precisely what they are doing. Their reactions are a clear case of Catch 22. They are dammed if they try to come to the defence of Vadra and they are dammed if they don’t. However, in the process Vadragate may turn out to be Sonia Gandhi’s Bofors.
The article originally appeared on www.firstpost.com on October 16, 2012. http://www.firstpost.com/india/will-vadragate-turn-out-to-be-sonias-bofors-492019.html
(Vivek Kaul is a writer. He can be reached at [email protected])

Sibal jumped the gun: SC may well see Coalgate as a scam

Vivek Kaul
Gyan Chaturvedi, a famous Hindi writer of this era, makes a very interesting point in the introduction to his 2004 book Marichika . He writes “jungle ke apne niyam hote hain aur wahan kissi tark ka koi sthan nahi hota (a jungle has its own rules and there is no space for any reasonable arguments to be made there).”
Nobody understands this much better than politicians operating in the jungle of politics. They rush to save their own skin and keep justifying what they had said earlier, despite evidence to the contrary. “My position is right because I had said so in the past,” is the logic with which they operate. There is no scope for a “reasonable argument” there.
The Telecom Minister Kapil Sibal’s reaction to the Supreme Court’s “opinions” on the government reference to it asking for broad-sweep clarifications on its policy of allocating natural resources is a very good example of the same. “We welcome the Supreme Court(SC) opinion. SC has confirmed what the government has been saying,” Sibal said yesterday.
This comment came after a five judge bench of the Supreme Court answered the questions it had been asked by the government of India through a Presidential reference on April 12,2012. Among other things the government had asked the Supreme Court to clarify on “whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions.”
This question had arisen in light of the Supreme Court judgement cancelling the licenses given to 122 telecom companies in 2008, when A Raja was the Telecom Minister. The government had given out these licenses on the basis of “first come first serve” principle rather than auctioning them as they had done in the past and thus causing a huge loss to the exchequer.
In response to the government’s question the Supreme Court clarified “Auctions may be the best way of maximising revenue but revenue maximisation may not always be the best way to subserve public good. Common good is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the “common good” and, if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in Article 39(b).”
This paragraph in the suggestions made by the Supreme Court perhaps got the politician in Sibal gloating and into the “I had told you so” mould. The government has maintained that auctioning natural resources is not always the best possible way to operate because it tends to drive up prices. For example, if coal is auctioned to the highest bidder, then power prices will go up. Hence, in lieu of the “common good” natural resources cannot always be sold to the highest bidder.
Let’s see how strong this argument holds in case of the coalgate scam. Between 1993 and 2011, the government gave away 195 coal blocks with total geological reserves of 44802.8million tonnes free to private and government companies. An estimate of the total amount of coal present in a block is referred to as geological reserve. Due to various reasons including those of safety, the entire reserve cannot be mined. The portion that can be mined is referred to as extractable reserve.
Of these 115 blocks were given to companies which would use coal that they produced from these captive blocks for the manufacture of cement and iron and steel, conversion of coal to oil and commercial mining. These blocks have geological reserves amounting to 20526.9 million tonnes of coal.
The manufacture of cement and iron and steel or commercial mining operations are “for profit” operations and cannot be termed as “common good”. Hence there was no reason for the government to give away these coal blocks for free. That is a clear interpretation that one can draw out of what the Supreme Court said.
Eighty coal blocks were given to companies for the manufacture of power. Of these 80 coal blocks, 53 blocks were given to companies for captive dispensation of power. These blocks had 10621.4 million tonnes of geological reserves of coal.
What this meant was that companies had to use the coal produced from the blocks they had been given to produce power to meet their internal needs. Hence a company manufacturing steel could use coal produce from its blocks to manufacture power needed to produce steel. The “free” coal blocks would allow them to produce power cheaply and thus bring down their costs and thus make higher profits from what they would have made. Again, the end result is a “for profit” operation and this cannot be categorized as “common good”.
Hence, 168 out of the 195 coal blocks with geological reserves of 31148.3 million tonnes were allocated to companies supposedly in “for profit” operations. The remaining 27 blocks with geological reserves of 13654.5 million tonnes were allocated for production of power. Of these seven blocks had been allocated to ultra mega power projects. The companies which were given these blocks could produce power cheaply because they did not have to pay for the coal block. This can be categorized as a “common good”.
Hence, common good is limited to around 30% of the coal reserves allocated under the government’s policy of giving away coal blocks for free. Even this can be questioned given that all the seven coal blocks (with geological reserves of 2607million tonnes) allocated to the ultra mega power projects are in the private sector. And no private sector company is in business to make a loss.
If Sibal had read the suggestions of the Supreme Court carefully enough he would have realised that Justice Jagdish Singh Khehar, one of the judges on the bench, does make the points I just raised above.  “When natural resources are made available by the state to private persons for commercial exploitation exclusively for their individual gains, the state’s endeavour must be towards maximisation of revenue returns. This alone would ensure, that the fundamental right enshrined in Article 14 of the Constitution of India (assuring equality before the law and equal protection of the laws), and the directive principle contained in Article 39(b) of the Constitution of India (that material resources of the community are so distributed as best to subserve the common good), have been extended to the citizens of the country,”Kehar points out.
Given this, it clearly means that 70% of the coal blocks given away for free should have been auctioned because there is clearly no “common good” involved there.
Judge Kehar also pointed out that “No part of the natural resource can be dissipated as a matter of largesse, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to “best subserve the common good”. It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable.”
Khehar also clearly points out that even though the Supreme Court was saying that the auction of natural resources wasn’t the right way to proceed always, but that did not mean that there should be no auctions at all. “Government should remain alive to the fact that disposal of some natural resources have to be made only by auction…A rightful choice, would assure maximization of revenue returns. The term “auction” may therefore be read as a means to maximize revenue returns,” the Judge said.
The Judge also makes it clear that in several situations giving away coal blocks for free wouldn’t work. “If the bidding process to determine the lowest tariff (of power) has been held, and the said bidding process has taken place without the knowledge that a coal mining lease would be allotted to the successful bidder, yet the successful bidder is awarded a coal mining lease. Would such a grant be valid?… Grant of a mining lease for coal in this situation would therefore be a windfall, without any nexus to the object sought to be achieved,” he said. Thus a power company which is in the business of selling power at commercial rates could get an undue benefit because it had access to free coal blocks.
Another interesting point that the Judge makes is that the man on the street should know why the decision has been taken in favour of a particular party. What this means in terms of the coalgate scam is that the government owes an explanation to the nation as to why relatives of ministers in the government got coal blocks for free? It also needs to tell us is how did dubious companies with no previous experience in any business land up with coal blocks?
Kapil Sibal clearly jumped the gun while making the comments that he did yesterday. Guess by now he would have found time to read through what the Supreme Court had to say in totality. Given this he would understand that the underlying tone of the suggestions made by the Supreme Court is that the UPA government screwed up majorly while giving away coal blocks for free since they came to power in 2004.
(The article originally appeared on www.firstpost.com on September 28,2012. http://www.firstpost.com/business/sibal-jumped-the-gun-sc-may-well-see-coalgate-as-a-scam-471881.html)
(Vivek Kaul is a writer. He can be reached at [email protected])