Sunday, October 20, 2013

The coal blocks allotment scam and bureaucratic decision paralysis

The latest twist in the CBI's investigation of India's coal block allotment scandal is a an excellent example of how decision paralysis threatens to grip the Indian bureaucracy.

The latest issue concerns the decision to allot Talabira II and III coal blocks in Odisha to Mahanandi Coalfields Ltd (MCL), Neyveli Lignite Corporation (NLC), and Hindalco. The coal blocks were originally allotted to the two state-owned firms by the Coal Ministry's Screening Committee. However, Mr Kumar Mangalam Birla, owner of Hindalco, wrote to the Prime Minister, asking for allotment of some coal from Talabira for the captive power plants being set up for its two Aluminium plants in Odisha. On the Prime Minister request for a report, the then Coal Secretary, Mr PC Parakh, after re-examining the case, recommended for sharing of coal extracted from the two blocks in a ratio of 70:15:15 between MCL, NLC, and Hindalco. The present controversy arose when the CBI, investigating into all coal-block allotments, filed an FIR, implicating the Mr Parakh and Mr Birla for indulging in a criminal conspiracy to get the coal block allotted to Hindalco, in contravention of the earlier decision to allot the blocks to only the two public sector entities. 

The Prime Minister's Office has issued a very detailed clarification to clear the air. It has clearly asserted that the decision to change the allotment was influenced by the strong recommendation of Odisha Government, directly through its Chief Minister, that Hindalco be given preference in the coal block allotment since it sought to establish two Aluminium plants which would create a number of jobs. 

Now consider the context. The Government of India had been following a discretionary allotment policy for coal blocks. The role of Mr Parakh, was to give his remarks on the request of the Prime Minister. He did so, by making out a case to revise the allotment. The Prime Minister, being the Coal Minister too and therefore the competent authority, after examining the case and the report of the Coal Secretary, approved the change in allotment. The due process of law being followed in all the official transactions. Given this context, the CBI's FIR makes interesting reading,
Pursuant to these letters and personal meeting between Parakh and Birla, Parakh, by abusing his official position as a public servant recommended the allocation of Talabira II along with Talabira III coal block to Hindalco Industries Limited, along with other two companies without any valid basis or change in circumstances and with the sole intention to show undue favours to Hindalco Industries Limited… The inclusion of Hindalco reduced the share of Neyveli Lignite in the coal field… Due to this arrangement, the proposed power project of the NLC could not take off as planned.
Notice the insinuating reference to a “personal meeting”, which, atleast from the FIR's operative part, forms the basis a very sweeping accusation. Mere reversal of a decision, even if it meant adversely affecting the interests of a public sector entity, cannot form the basis for a “criminal conspiracy”. In this case, Mr Parakh had clearly laid out the reasons for his recommendation so that the competent authority could take a decision. One can ponder over the merits of the recommendation. However, to attribute malafide due to selective focus on three events from amongst an expansive cohort of potentially unrelated events - a “personal meeting”, loss caused to a public sector entity, and gains to a private entity - strains credulity. 

The substantive allegation in the FIR is that the decision caused loss to a public sector entity and gains to a private sector entity. This reveals the widespread proclivity, even among well-intentioned people, to view national interest as equivalent to the interest of any government agency, especially so when it is pitted against a private agency. It is of course true that, more often than not, governments and corporates have colluded in a manner as to defraud public entities. However, in the instant case, even leaving aside the state government's preference, economic considerations alone would have been enough to prioritize allotment of the blocks to a firm which sought to establish two Aluminium plants. Further, as the PMO statement shows, NLC could establish its power plant by partnering with MCL. It is another matter, and not surprising given its track record, that the NLC never got round to building the power plant.     
A decision, by definition involves an exercise of judgment! In a ‘rule-based’ regime and especially so in a ‘discretion-based’ regime (as was the case with the extant coal-allotment policy), this would invariably benefit one party at the cost of another. It is fallacious to presume that “following the rules” amount to an algorithmic application of those rules. The FIR betrays a failure to appreciate the complex dynamics of public resource allotment decisions - after all, the specifications of even an open-competitive bid document involves considerable subjectivity, which often benefits one party at the cost of another. If this line of argument takes hold, then every decision is liable to be questioned and officials will shy away from taking decisions.

In the entire case, I leave aside any reference to Mr Parakh's personal and professional integrity, impeccable as they are. Indeed, in this case, it was Mr Parakh’s correspondences that formed the basis of the CAG’s reports that exposed the coal-scam. Apart from several steps to introduce transparency into the allotment mechanism, he played the critical role in dispensing with the discretionary allotment regime. All this incontrovertible evidences appear to have been overlooked in favor of a subjective and questionable appreciation of the events leading to the decision. 

In simple terms, a Secretary to Government of India gives his considered opinion, following the due process, on a formal request from the Prime Minister, who as competent authority agrees with the opinion and takes the decision. All the transactions and decisions are in consonance with the prevailing rules and within the powers of the respective individuals. However, the premier investigating agency of India sees red and finds the Secretary culpable of "criminal conspiracy". Given such precedents, who can blame officials in Delhi and elsewhere, of sitting on decisions.   

Such hair-trigger investigations will only demoralize the bureaucracy, at all levels, and amplify the trend towards a potentially complete paralysis of decision-making within the government. Or is there something more than incompetence that influenced the FIR? Or is it further evidence of our descent into a banana republic?


Anonymous said...

Enlighten us with more such needles in the hay stack before putting up the case of 'demoralizing the bureaucracy'.

Urbanomics said...

Anon, wish I could blog about them!