It’s not easy to defend India’s democratic structure and economic policy-making these days. The latest gridlock in the Parliament over the national auditor’s estimation of a potential loss of $33 billion, in revenue associated with coal blocks allocation, is only the latest indictment of the country’s leadership.
According to some estimates, almost 20% of the country’s power capacity lies idle due to lack availability of coal. This shortage continues to be hostage to the sluggishness of the government’s response.
Soon after coming to power in 2004, the Manmohan Singh government realized that Coal India Limited, the government-owned corporation that manages more than 80% of the coal reserves will not be able to meet the demand from the power industry or the targets set by the 10th Five Year Plan. Instead of reforming Coal India, the government decided to open it up to private players, a practice underway since 1993. What makes the current ruckus both sad and amusing is that these coal blocks were not expected to account for more than 10% of total production in the country, if the leaked version of the Comptroller and Auditor General (CAG) report is to be believed.
By definition, the management of the mines and minerals sector is difficult. The regulation and development is on the Union List of the constitution, which means that the central government has sole power over the policies that govern this sector. The land required to develop this sector, however, is on the State List, giving states the sole power to make land available for project execution. Since most state governments where the coal blocks were awarded were run by opposition parties, the divergence on the approach to coal mining was inevitable.
Eventually, the approach adopted reveals the government’s habit of choosing a path which requires the least approvals and the smallest number of stakeholders. Instead of inviting bids for the blocks in an open and transparent process which would have required new legislation, the government sought nominations and allocated the blocks by screening companies. Even though this expedited the process, the estimated loss of revenue hardly justifies the path taken. This is truer now as the government needs the money to import coal from Indonesia and Australia to compensate for the shortfalls since most of these mines are still in the gestation period.
As serious as the issues with coal shortages are, the CAG report has highlighted other weaknesses of our governing institutions. Most unfortunate, is the growing conflict between the CAG and the ruling coalition. The CAG report was leaked in March this year, months before it was supposed to be tabled in the Parliament. The Prime Minister’s harsh critique of the findings is an unfortunate development for both the ruling party and the CAG, because they are supposed to be on the same side. Similarly, the adjournment of Parliament for a sixth straight day ensures that the people will be denied an informed debate on the scam and on other pending matters.
Thus, what the coal scam and the policy paralysis validate is that both are manifestations of more fundamental deadlocks in India’s governance structure and processes; a real concern for an emerging economy that needs swift policy formulation, and an effective and transparent implementation.
Nevertheless, those quick to dismiss India’s potential should not judge the nation’s resilience and promise by scams alone but by the leadership’s response, even if incremental. The discrepancies did not creep in overnight and it’s unfair to expect the response to take effect quickly. It also reaffirms a growing understanding that the easy reforms have been done. Stronger leadership is required to push through the harder ones related to mining, land, labour, etc. that are more closely connected to livelihoods.
In the end, the legitimacy of our democratic structure and policy-making will be judged by how effective they are. For now, an open and informed debate on the issue is essential.
Akshay Mathur is Head of Research at Gateway House: Indian Council on Global Relations.
Financial Times republished this feature, on 31 August, here.
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