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Rigging The PMO : South Bloc

It's not a level playing field. The business of governance is subverted by a group of industrial houses.

Rigging The PMO : South Bloc
Rigging The PMO : South Bloc
Should two individuals and a clutch of business houses dictate a democracy's economic agenda? In the India of the bjp, the PM's principal secretary, Brajesh Mishra, and the officer on special duty (osd) for economic affairs, N.K. Singh, call the shots. Key economic decisions are being thrust on the nation, to the comfort of a few business lobbies. It started in 1998 with Singh's ascendancy to the pmo. It has got worse today. Mishra and Singh constitute the powerful arms of the Prime Minister's Office (pmo), which has now become an imperial power centre, riding roughshod over the bureaucracy and foisting controversial decisions on various ministries without so much as consulting them.

Perhaps nothing illustrates this better than a letter written on January 29 by telecom secretary Shyamal Ghosh to industries secretary Piyush Mankad, who is vested with the authority to approve foreign direct investment (fdi). In it, Ghosh speaks of how his ministry and his minister had been bypassed by a Group of Ministers (GoM) constituted specifically by the pmo, which cleared fdi of up to 74 per cent in the telecom sector. This was done despite strong objections from the telecom ministry, which had put it categorically in writing that no country allows over 49 per cent foreign equity in telecom.

To quote from Ghosh's letter: "Frankly, this matter has come as a surprise to us as neither the note dated 24-10-2000 (now enclosed with the…Cabinet Note) for the consideration of the GoM had any mention on fdi policy for the telecom sector nor was it sent to us. Further, neither the minister of communications nor any representative of this department had attended the GoM meeting on 11-01-2001 wherein the above recommendations now included in the Cabinet Note would have been decided."

So how does this two-man team promote the interests of select lobbies? It is largely through the GoM, a three-letter shorthand that's become a fixture in today's economic lexicon and a ruse to get questionable policy decisions through. In fact, Prime Minister A.B. Vajpayee has created a record of sorts, setting up almost 35 GoMs till date. Though technically set up by the cabinet, it's been found that on many occasions, it functions at the behest of the pmo and not the cabinet. Besides, the GoMs do not have adequate representation of nda allies. Says a senior nda minister, requesting anonymity: "Apart from bjp ministers, the only allies who are included are George Fernandes of the Samata Party and Suresh Prabhu and Manohar Joshi of the Shiv Sena. The rest of us are not even consulted."

Several officials in key ministries insist that these GoMs thrust "suspect" and one-sided economic decisions down the throats of ministries. What makes the GoM unique is that it clears decisions despite objections from the ministries concerned. As a result, the bureaucracy has become an agency that often executes decisions that it had valid objections to. Another case in point is the GoM on aviation, which decided to up foreign holding in Indian firms to 51 per cent from 49, thus allowing the foreign owner the majority stake. A miffed aviation minister Sharad Yadav, who wasn't consulted, has reportedly asked for time to study the implications. Points out a senior finance ministry bureaucrat, "It's desirable that any GoM functions at the behest of the cabinet, not at the instance of the pmo.If this norm isn't respected, it will only dilute the accountability of the ministries to the cabinet."

The GoM and the two other aces up the pmo's sleeve—the Strategic Management Group (smg) and the PM's Economic Advisory Committee (eac)—have played out agendas that have served as "institutional mechanisms to overwhelm ministries". The eac was formed by the two-member team—Mishra and Singh. And the stated idea of the smg (meetings chaired by the same duo) is to monitor the developments in key ministries regarding the progress made on issues of national importance. "The flip side is that it gives the pmo overriding power and leeway to interfere with the functioning of the ministries," says a senior bureaucrat.

Here are some decisions the pmo is piloting or has thrust on ministries allegedly to the advantage of business cartels/houses:

  • The provision of counter-guarantee for the Reliance group's Rs 20,000-crore Hirma power project in Orissa. The finance ministry has objected to the guarantee as, in its view, it is an "Enron-like project". Ditto the department of economic affairs and the power ministry. Financial institutions have thrown up their hands indicating that the project is unviable in financial terms. But the pmo is all for it and is still trying to push it through. It was the smg headed by Mishra which cleared the counter-guarantee for the project on November 17 last year.
  • A policy paper with the blessings of the pmo which is doing the rounds in the power and finance ministries envisages direct dealings with power firms and international financiers instead of through competitive bidding. The rationale: easier availability of soft, long-term loans. The downside, according to notings by power and finance ministry officials, is that the projected cost of setting up such projects would be so high as to make these economically unviable.
  • The January 25, 2001, decision piloted by the pmo to allow Fixed Service Providers to provide mobile services through wireless telephony has been to the benefit of two key players—Reliance and Himachal Futuristic Communications Ltd. A group of nine firms, including bpl, Birla at&t and Hutchison Max, and the Cellular Operators' Association of India have gone to the Telecom Disputes Settlement and Appellate Tribunal against what their joint petition describes as a move that is "unfair, unjust, unreasonable, arbitrary, discriminatory, non-transparent and illegal". Through this policy, the government has lost a long-term revenue earning potential of Rs 25,000 crore.

  • The clearance accorded to the $1-billion Oman fertiliser project on January 24. The finance ministry and the Public Investment Board had serious reservations about the project, which involves India purchasing 1.65 million tonnes of urea at a mandated price for the next 15 years. It was stoutly argued that India was not in any pressing need to expand its urea utilisation. Also, a fixed procurement price would mean paying more than the international price in the event that urea prices fall. But brushing aside all objections, the pmo and the ministry of external affairs have pushed the project and even the price for procurement has been tentatively fixed at $150 a tonne for the first year. Incidentally, the project had been mired in controversy and had not taken off for 10 years. And despite there even being news reports last year that it had been shelved, it was suddenly revived.

  • Terminalling charges of Rs 150 crore a year cleared in January from the oil pool account for Reliance Petroleum Ltd (rpl) and its subsidiary, Reliance Port and Terminal Ltd. Terminalling charges refers to the costs incurred by rpl to construct landing terminals (jetties) where oil tankers offload or pick up crude and petroproducts. In effect, the government has agreed to pay in instalments for a facility rpl has constructed for its own export and import activity. The objection to this was that it amounts to subsidising the company's operations.

  • Major changes in the telecom policy have been initiated by the pmo through its GoMs in the last two years, including the migration from a licence fee to a revenue sharing regime at the behest of telecom operators. This has made a mockery of the bidding for telecom rights. It was pointed out that despite very high bidding in Britain and Germany when they opened their telecom sectors, the operators were not allowed to renege on the amounts they had bid.

    The arbitrariness with which some officials and ministries function, courtesy the pmo, is showcased in the manner in which the Hindujas attempted to push through the counter-guarantee for their fast-track power project at Visakhapatnam in 1999. Objections to such a guarantee had been raised by the department of economic affairs. To bypass this, a special meeting was convened, attended by a joint secretary from the department of economic affairs, the then power secretary, R.V. Pandit, and Mohan Guruswamy, an osd with the finance ministry and a political appointee.

    According to a senior bureaucrat, Guruswamy was described as the "official representative of the finance ministry and the representative of the Government of India". Pandit was virtually forced to sign the counter-guarantee, a blatantly incorrect act, since it is the finance ministry and not the power ministry which is authorised to issue a counter-guarantee. Says a finance ministry bureaucrat who knows of this event, "That was a very big irregularity."

    But the Hinduja brothers—with their contacts in the pmo and their much-written-about closeness to the prime minister—did not stop there. They even managed to persuade the then expenditure secretary to give an assurance undertaking an assured supply of coal to be transported by the railways from the collieries to the power company's washeries.

    To push their agenda, they pulled out all stops. It is reliably learnt that when E.A.S. Sarma was power secretary, the brothers made various attempts to meet him. Sarma was strongly opposed to counter-guarantees and bluntly refused to meet the brothers, who then tapped Shakti Sinha, the PM's former private secretary, to arrange a meet with Sarma. When this too failed, the power secretary was shifted out.

    While power is a key area where the pmo has been active, it is now spearheading the "reforms" process even in the petrochem sector, which is to be opened up in 2002. Here too, the main player is Reliance. According to sources in the petroleum ministry, the stage has been set for the company to make maximum capital in two years, should the duty structure on naphtha and crude be maintained at current levels. This is what Reliance is pushing for.

    In addition, the Narad Committee—which looked into the parameters for the opening of the sector, and which submitted its report a month ago—has clearly spelt out that the opening up of the petro sector should consider only those players who have invested Rs 2,000 crore in their refinery projects.Reliance, obviously, will be the main beneficiary of this recommendation.

    Also, the existing import-export conditions state that for every tonne of naphtha exported, a refinery can import 1.2 tonnes of crude duty-free. Since the import levy on naphtha is lower (5 per cent) than the import levy on crude (10 per cent), there is an incentive to import naphtha and re-export it, and then claim quotas of duty-free crude. With naphtha on the Open General Licence (ogl) from April this year, big refineries are expected to make full use of loopholes in the duty structure.

    Indeed, say sources in the petroleum ministry, there are fears that once naphtha is on the ogl, it will be used by private refineries to adulterate petrol. Says a senior bureaucrat, "This is already happening but could see a sharp rise from April. Also, it opens the possibility of showing benami exports by shipping just beyond territorial waters and re-importing crude with concessions—a practice that seems rampant even now."

    Not even the fertiliser ministry has been spared. According to serving bureaucrats in the ministry, many important meetings of the Fertiliser Industry Coordination Committee convened last year by the then secretary, A.K. Gokak, were postponed at the instance of the pmo. These meetings were to decide pricing and also evaluate the actual production capacities of fertiliser units in the private sector. It can be recalled that the fertiliser ministry had sent to the cbi a list of companies which were illegally producing more than their declared capacities, the idea being that the surplus could be offloaded without paying duties. This case is still under investigation.

    The flip-flop decisions vis-a-vis the tobacco industry in the northeast are telling examples of how the top decision-making body in the country panders to various lobbies. In July 1999, at the insistence of tobacco majors, the government decided to include cigarettes in the list of excise-exempt items should the manufacturing be based in the northeast. This, despite the finance secretary's strong reservations on including tobacco in this list. But on December 31, 1999, the excise exemption was withdrawn. The story did not end here. A month later, in an inexplicable move, the exemption was restored as part of the PM's package for the northeast!

    Though it has been pointed out as being economically unfeasible, the pmo has been pushing the National Highways Project, a network of expressways across the length and breadth of the country. According to sources in the National Highways Authority of India, only up to 5 per cent of the proposed roadway will earn enough from tolls to sustain itself. But wisdom seems to have taken a backseat with the PM personally championing the project.

    While lobbies have always been at work to promote their interests in both the pmo and key ministries, what is being witnessed today is the overt influence of a clutch of industrial houses/lobbies. "There used to be a democratisation—many companies could claim to have influence over ministerial decisions. Unfortunately, this slot now belongs to only a few," says a senior government official.

    It is learnt that these business houses have the clout to convene cabinet meetings at short notice and set up an audience with the prime minister (see interview). A serving secretary says, "It might be difficult for a secretary in the government to meet the prime minister but the doors are open for Dhirubhai Ambani.Everyone salutes him."

    Much of the favours shown to the industrial lobbies are passed off as economic reform. But industrialists and investors are beginning to see through the machinations. Points out an executive of a telecom multinational, "What we are seeing is not reforms. There is no level playing field, no fair play or an atmosphere which promotes healthy competition. In a sense, this is a licence raj in a different garb."
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