By Pradeep S Mehta
While Prime Minister Narendra
Modi in his Independence Day speech inter alia highlighted
petty corruption, it was RBI governor Raghuram Rajan who
made a frontal attack on crony capitalism ie big-bang
corruption in another speech. Both cancers have to be
attacked. Hopefully this phenomenon will subside if the
government is as serious as it claims to be.
What is crony capitalism? It
happens when business colludes with the polity and
bureaucracy to gain unfair advantages, like the 2G spectrum
scam or the Coalgate affair when a handful of oligarchs got
favours without any competition or proper procedures. Just
these two scams cost the nation in excess of Rs. 300,000
crore, according to CAG estimates. The loss to the nation
will be much higher if the entire spillover cost is
assessed. Thanks to our Supreme Court, the CBI and media,
the scams were revealed. This unfortunately led to a policy
paralysis during the last government, causing further
problems.
Crony capitalism survives on a
licence raj, so that when businesses apply for favours they
have to grease the palms of the powers that be. Thus, it
ends up in unjust enrichment of all players at a cost to
public welfare. The licence raj shrank after we adopted
economic reforms in 1991, and that reduced the rent-seeking
avenues. Where would the polity get their spoils to fight
elections? So the harvesting area was natural resources and
we now turned to a resource raj.
Alarmed at the dismal situation,
in January 2011, the government set up the Committee on
Allocation of Natural Resources, headed by former finance
secretary and incumbent head of the Competition Commission,
Ashok Chawla. The committee delivered the report (http://tinyurl.com/op38mdb)
in record time to the government in May 2012. It attacked
the very fabric of crony capitalism and recommended a
transparent and competitive process of allocations in
various sectors: Spectrum, coal, oil, land, etc. However,
the report has not been made public because of pressure from
business lobbies, particularly in the hydrocarbon sector.
According to news reports, some
69 recommendations of the 91 made have been adopted. Opacity
about a major reform report is worrisome. While hearing the
2G case, the report featured in the apex court. Here the
government was caught between a rock and a hard place, as
the court observed that auctions were the best way forward.
The government felt that auctions were not the only way to
allocate natural resources but other market-based methods
should also be adopted.
The first-come-first-served
policy to allocate spectrum adopted by the NDA in 2002 was
per se not wrong as many countries have used the same method
successfully, but the UPA government did it with mala fide
intentions. Some countries have adopted the reverse auction
process to increase the prices, ie after opening the bids,
they re-invite fresh bids to a higher level. Even though it
may appear to be extortionary it is done transparently,
which results in higher treasury gains. The main trick here
is to see that there are no entry barriers and that consumer
prices remain low.
In the hydrocarbon sector, the
country is already witnessing an ongoing debate on
allocation of offshore blocks and natural gas prices. To
begin with, the regulations were drafted with businessmen’s
interest, which has led to a standstill in many exploration
ventures, and litigation. Thus, neither oil nor gas is being
harvested according to its potential. Consequently, the
power and fertiliser sectors are underperforming and our
current account deficit is going up due to imports.
Will the Modi government bite
the bullet? Perhaps it will.
Pradeep S Mehta is secretary
general, CUTS International.The views expressed by the
author are personal
This news can
also be viewed at: http://www.hindustantimes.com/
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