A Dangerous Liaison

“Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.”

– Gerald P O’Driscoll Jr

These words of wisdom came back to me when I listened to Arvind Kejriwal at his India Against Corruption press conference yesterday. I had read the eminently readable An Economy of Liars some time ago where this quote comes from. And although the context is very American, what Gerry O’Driscoll Jr says could just as well apply to India of 2012.

That big business houses exercise a huge control over governmental policy is too well-known to be contested. And to a certain extent understandable as well. After all, it is the entrepreneurs who take risks. But when their pursuit of profits takes precedence over all else and their suzerainty extends to direct control over governmental decisions, there is room for major concern.

In the Seventies, I recall the then-British Prime Minister, Edward Heath, a diehard Conservative and a free marketeer himself, describing the businessman Tiny Rowlands as an “unacceptable face of capitalism” after noting his activities in southern Africa with a profound sense of dismay.

An entrepreneur is primarily motivated by profits. The arithmetic is as simple as that. And to ensure maximization of profits, the free market is considered ideal. When there is more than one political formation wedded to free market principles as in the United States, the business houses by and large prefer to keep their options open and have easy access to both political parties. Somewhat similar is the case in the present day Indian scenario where both Congress (I) and BJP swear by market economy principles. One look at the economic policies of both the formations as expounded in their respective manifestos would convince anyone that there is no fundamental difference between them. It is hardly surprising therefore when Kejriwal says that both the Congress (I) and BJP have the same vested interest.

And it would be entirely in order to state that after the press conference, the government seems to have lost the plot. The BJP did not come out any better either with Ranjan Bhattacharya’s robust assertion – in the section of the Radia tapes produced – that Mukesh Ambani had the Congress (I) in his pockets. The evidence was convincing and cogent.

Besides, the coincidence of the Ambani’s unease with Jaipal Reddy and his removal was much too coincidental to accept the governmental explanation!

Before I proceed any further, I think I must place a disclaimer. I had bumped into Jaipal Reddy in the early Nineties. He had undergone a bypass surgery in the US and following our meeting he suggested that I relocate back to India. He was one person who went to enormous trouble to ensure my relocation, pleading with the ministers concerned. That was itself remarkable given that he was a senior Opposition leader at the time. I shall always be indebted to Mr Reddy for the work he undertook on my behalf. I have not had any dealings with him since.

I also have to add that I had observed Mr Reddy’s career with a lot of interest since 1975. He was a Youth Congress leader at the time but took a very principled stand and resigned from the party stating publicly that he was doing so as he regarded the Emergency an atrocity. He remained the fulcrum of anti-Congress (I) politics for nearly 25 years after that .His re-entry to the Congress (I) I must admit came as an unpleasant distraction but he has, unlike most other Indian politicians including his Cabinet colleagues, enjoyed a very high reputation for both probity and erudition.

The evidence produced makes it very clear that he was fundamentally opposed to the Ambani shenanigans and would have opposed any price rise to pacify the businessman. Gas production was deliberately kept low to inflate prices!

The two revelations that disturbed me most were: Reliance Industries Limited (RIL) signed a contract with National Thermal Power Corporation (NTPC) in 2004 to supply gas for its power plants at $ 2.34 per mmBTU for 17 years. It signed a similar contract with Reliance Natural Resources Limited (RNRL) to supply gas at $ 2.34 per mmBTU. However, RIL went back on its word. Under RIL’s pressure, the Empowered Group of Ministers (EGoM)  headed by Pranab Mukherjee, revised the gas price in September 2007 to $ 4.2 per mmBTU. NTPC and RNRL were forced to accept gas from RIL at the revised price. By doing this, the Pranab Mukherjee-headed EGOM gave an undue benefit of Rs 8000 crore to RIL.

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Cost of production is much less than $2.34 per mmBTU. (Copy of extracts from a Supreme Court order Annexure 4). RIL had actually signed long term agreements with NTPC and RNRL for supplying gas at that rate for 17 years. This means that at $2.34 per mmBTU also, RIL was making adequate profits. India is getting gas at $0.9 per mmBTU from Oman. Gas rates in Canada are at $1.74 per mmBTU. This means that at $2.34 per mmBTU also, RIL was making huge profits.

And nothing, absolutely nothing that the RIL and the government has come out with since then by way of rejoinders effectively counters this. My economics acumen is non-existent. But as a simple consumer I do know it is wrong.

And as the business houses have links with all the political formations – even the CPM in Bengal and socialist SP – it is difficult for me to repose trust in any of them. Kejriwal has succeeded in getting his message across.

The panel discussions on various channels in the evening were somewhat of an anti-climax. IAC representatives like Anand Kumar and Shazia Ilmi held their ground and Nalin Kohli of the BJP made an abysmal showing. TSR Subramaniam was eloquent as usual.

But the person who came across as most disappointing was the lawyer, Aryaman Sundaram. He ridiculed the conference dismissing it as a stunt stating that much that was said was already in public domain. Maybe so Mr Sundaram, but for those as ill-informed as myself – and I presume there are a few others like me – it was indeed a revelation.

There have been whispers of inopportune capitalist control in matters of governance and media. Remember Vinod Mehta’s lament over the treatment meted out to him by the Tatas following the publication of the Radia tapes. And only yesterday, MJ Akbar’s resigned from Headlines Today as he believed Kumarmangalam Birla’s recently acquired control would have an adverse effect on the magazine. About time we pulled up our socks and break this unholy nexus – if our democracy has to survive!

Two instances illustrate the danger: Eric Lipton, Clifford Krauss – A Gold Rush of Subsidies in Clean Energy Search

“But there is no doubt that the deals are lucrative for the companies involved. G.E., for example, lobbied Congress in 2009 to help expand the subsidy programs, and it now profits from every aspect of the boom in renewable-power plant construction.

It is also an investor in one solar and one wind project that have secured about $2 billion in federal loan guarantees and expects to collect nearly $1 billion in Treasury grants. The company has also won hundreds of millions of dollars in contracts to sell its turbines to wind plants built with public subsidies.

Mr Katell said G.E. and other companies were simply ‘playing ball’ under the rules set by Congress and the Obama administration to promote the industry. ‘It is good for the country, and good for our company’, he said. Satya Kumar, an analyst at Credit Suisse who specialises in renewable energy companies, said there was no question the country would see real benefits from the surge in renewable energy projects.

‘But the industry could have done a lot more solar for a lot less price, in terms of subsidy’, he said.” & Gilbert M. Gaul, Dan Morgan, Sarah Cohen “In the summer of 2003, shoppers in Southern California began getting a break on the price of milk. A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled US milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga’s initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga’s experiment — all without a single congressional hearing. ‘They wanted to make sure there would be no more Heins’, said Mary Keough Ledman, a dairy economist who observed the battle. Hettinga, who ran a big business and was no political innocent, fought back with his own lobbyists and alliances with lawmakers. But he found he was no match for the dairy lobby.

‘I had an awakening’, the 64-year-old Dutch-born dairyman said. ‘It’s not totally free enterprise in the United States.’”

I rest my case!

Image By- Reetika Verma