Opinion Where donkeys fly

What’s the proof? The latest illiteracy from the prestigious (take a bow),independent (and non-Congress?),Comptroller Auditor General (CAG) report on national coal assets being sold too cheaply to top Indian industrialists.

The CAG gained notoriety in 2010 by accusing this very same government of losing Rs 1.76 lakh crore by not holding an auction for 2G licences. There was considerable truth in the assertion that corruption was involved. Most independent non-CAG estimates centred on a figure about one-fifth of the amount. One lakh crore is a trillion; one fifth of 1.76 trillion would be 0.35 trillion or 350 billion,or Rs 35,000 crore. Still a lot of money but nowhere close to the absurd figure (Rs 1,76,000 crore) given by the CAG. But the number was offered in economically illiterate India,so it flew into the hearts and minds of many an EIL Indian,especially of the political opposition and the shrieking journalist variety. Even the Supreme Court got involved in this travesty by denying bail to the accused for months on end. Talk about the influence of gross miscalculations.

The CAG learnt that in India donkeys indeed do fly,so it has come out with an even more outlandish assertion. In a leaked report,it has pronounced that industrialists in India were favoured to the tune of Rs 10.7 trillion in the years 2004-2009,just coincidentally chosen to be the years during which the Congress has been ruling,and for part of which time the prime minister,Dr Manmohan Singh,was also the coal minister. Incidentally,more than 60 per cent of these favoured industrialists are government-owned corporations! But to proceed with the EIL CAG report. It does appear to be somewhat tendentious,and extremely “one-sided”. And there is enough in the leaked report to damn the CAG as a phenomenally economically illiterate institution. But in a country like India that is not likely to be a disadvantage — indeed,as soon as the political opposition comes to power,Bharat Ratnas are likely to be conferred on the writers of the report.

What are some of the economic facts pertaining to the “coal looting of the country” during 2004-2009? Several facts are documented in the table. You can object to so many numbers — the shriekers will say there was loot and drown you out. In case you are a shrieker,stop right here — your time is better spent shouting without knowing. Others,read about the illiteracy whose name is CAG.

All data are presented as averages for the six years 2004-2009. GDP averaged Rs 45 trillion a year. The popular CAG coal scam figure is of a loot of Rs 10.7 trillion. But this figure is in 2011 prices — in average 2004-2009 prices,the alleged loot is Rs 6.3 trillion or Rs 1.05 trillion a year. This is not the revenue from production — it is the excess profit,or windfall,that has possibly accrued to the power industrialists (all puns intended).

In 2004-2009,all-India corporate taxes averaged Rs 1.2 trillion a year. So the hypothetical coal loot was almost equal to all corporate taxes gathered in India? Plausible,but not likely.

But this is for the economy as a whole — the CAG loot windfall calculation is with respect to only one sector of the economy. Coal production a year averaged 472 million tonnes,coal prices Rs 720 a metric tonne,for average coal revenue of Rs 0.34 trillion a year. All coal revenue,therefore,is a third of the CAG excess profit calculation (Rs 0.34 trillion versus Rs 1.05 trillion). Furthermore,the coal sector production value averaged less than 0.8 per cent of GDP and less than 7 per cent of “corporate” production. But the windfall loot revenue is near equal to all corporate taxes. So it seems that all of India’s deficit problems can be solved by just taxing the coal sector — no corruption and even less deficit. Maybe the CAG bosses should become governors of RBI,failing which surely minister of finance.

Before deciding on these appointments,let us proceed a little bit further. World coal production averaged 6.4 billion tonnes during 2004-2009. International coal prices averaged $74/tonne,yielding a global per year revenue of Rs 21.1 trillion. But at Indian administered prices,global coal revenue was only Rs 4.6 trillion. Assuming a hefty profit margin of 30 per cent,this yields average profit per year equal to Rs 1.4 trillion. So the CAG is suggesting that global coal production,which is 14 times the level of Indian production,yields the same windfall as the profit from licences given to Indian corporations (again public and private).

One final point. The states that have the most coal in India are Jharkhand,Orissa,Chhattisgarh,West Bengal,Andhra Pradesh,Madhya Pradesh and Maharashtra. Andhra Pradesh and Maharashtra,two Congress-ruled states,together account for only about 10 per cent of the geological reserves. The administration of non-auction licences involves the assent and cooperation of the respective state governments. So opposition politicians,be careful before you join in the chorus on looting and the rest of the EIL nonsense. Most of the fictitious loot,if not all of it,is in your corruption coffers!

The writer is chairman of Oxus Investments,an emerging market advisory firm