The supreme court’s declaration that all coal block allocations from 1993 is illegal has elicited three different kinds of reactions from people. The anti-corruption crusaders are ecstatic; They see this as a vindication of their belief that much of the past government's policy decisions were influenced by corporate money and lobbyists. They view the verdict as a victory for the people and a blow against crony capitalism and corruption.
Investors are disappointed. Their hopes of making a killing by betting on beaten down old economy stocks such as power, metals and PSU banks has just evaporated. Clarity on which blocks are going to be cancelled and which companies will end up losing money will come on September 1 but the damage has already been done. The Sensex on Monday gave up most of its gains and ended marginally higher but the metal index swooned 4.34% while the power index lost 1.24%. Recovery here is going to take some time.
The third set of reaction comes from the intelligentsia and the media and is a sober reflection upon the state of the coal industry and the policies needed to revive growth and end the state of paralysis. The Economic Times editorial today demands scrapping of the monopoly of Coal India; The Times of India does the same pointing out that successive governments have shied away from biting the bullet and that the NDA government must not repeat the mistake.
All these reactions are valid, correct but also predictable. Investors are bound to be disappointed given the money they have poured into metal and power stocks. Activists are likely to rejoice though whether this verdict will address the larger issue of crony capitalism and weaken the politician-businessmen nexus is debatable. Ending Coal India’s monopoly is an idea whose time has come but again this will only take care of the issue of production and availability. These ground-level issues are key to economic revival and growth no doubt but the important reputational issue facing India Inc is unlikely to get addressed. If there is one thing that the supreme court order brings out clearly it is this. Indian companies, big and small, brazenly used their political connections and clout to get what they wanted, and the ministers and bureaucrats who are supposed to serve the public, willingly obliged. There is no need to repeat the details of how the allocations were done here. The supreme court order lists out in excruciating detail the capricious, whimsical and arbitrary manner, and it is a scary and rage-inducing study of how rules were bent to accommodate the rich and the powerful.
One half of India Inc faces a reputational problem and this is not due to incompetence and leadership issues. Powerful investors are getting increasingly wary of conglomerates and big companies with deep connections to the political establishment and for the right reasons. At one point in our history, connections to the political establishment mattered a lot and was coveted but is increasingly seen as anachronistic and medieval in a new, aspirational India. There is widespread perception that companies in certain regulated sectors have made money due to connections and their ability to get concessions and decisions in their favour than any operational and business acumen.
The shenanigans of the rich and the powerful as they go about securing what they want is not news to many Indians. But what should worry is more the way our investigative agencies are performing. The courts can only do their job if the police and the Central Bureau of Investigation perform their jobs efficiently and without fear or favour. But alas! here there is ample cause for depression and anger. Monday’s order may have delighted anti-corruption activists but that is misplaced. Just take a look at what the CBI has been doing and it is clear that the battle against crony capitalism is far from being won.
Everybody knows that the case against Hindalco, Kumar Mangalam Birla, the chairman of the Aditya Birla group and former coal secretary PC Parakh was flimsy. But that did not stop the CBI from naming them in the FIR and accusing them of corruption. Months later, they backtracked with the CBI spokesperson telling the media that the agency does not have proof to back up their charges. Is this even believable?
The case against CB Bhave, former chairman of the Securities and Exchange Board of India (Sebi) and KM Abraham, former member, is even more ridiculous. MCX was denied permission to trade in equities during Bhave’s tenure as Sebi chairman and succeeded only after the courts intervened in 2011. Months after launching the enquiry in March 2014, the CBI again dropped its case citing lack of proof. What are we to make out of this? Our premier investigative agency appears bent upon behaving like a bunch of Keystone Kops, and that should worry us. The fact that CBI bows and bends to political pressure and that is even more scary. Crony capitalism will not shrivel and die because of a few supreme court orders and cancellation of licences. Fear of the law and prospects of swift and exemplary punishment are equally strong deterrents and there is little to show that our crony capitalists have any regard for the investigative prowess of our police or the CBI. Monday’s decision will change nothing unless it is accompanied by widespread police reform.
