Bring in reforms to prevent more Kodas

At a smart luncheon party in South Delhi this week something very peculiar happened. Someone blurted out, ‘These high and mighty guests are friends of Madhu Koda!’ This did not go well with our celebrity hostess, to whose discomfort the conversation soon went downhill as people sought the latest ‘juice’ on the Koda scandal. To my surprise, a consensus seemed to emerge that liberalization was at the root cause of corruption.

The link between corruption and economic reforms was also echoed in a cover story in one of our national magazines this week. In an opinion poll conducted by MDRA and the magazine, 83.4% of the people in eight major Indian cities believed that corruption had gone up after the liberalization process. It confirmed to me that people, who are otherwise sensible, still do not get it. They do not understand that corruption persists in India because reforms are incomplete and scams occur in sectors like mining which have not been reformed.

Madhu Koda’s is a rags to riches story. A labourer in a state owned iron ore mine in Chaibasa becomes an MLA in 2000. Five years later he is minister in charge of the lucrative mines portfolio. In 2006, he wins the ultimate prize--he becomes Jharkhand’s chief minister. Along the way he amasses Rs 4000 crores by giving away mining licenses in exchange for bribes, according to the charge-sheet. He turns non-entities into mining barons, gifting 11,100 acres of land to dubious companies. But he shares his wealth with his friends and everyone is happy.

Mining, like defence contracts, is prone to corruption. Extracting resources from the ground does not lend itself to the usual rules of competition. A mine is a natural monopoly and the state, which gives the right to mining, is also a monopoly. The two come together in the backroom and you get crony capitalism. What is the answer? It is not to focus on individuals but to change the system. Simulate competition. Have open, transparent bidding under a firm regulator (like an auction). The regulator evaluates the quantity and quality of coal in a mine, sets a minimum price (to keep out frivolous bidders and cartels) and offers the mine to the highest bidder. This would replace the present corrupt system of leases and licences, of monitoring production at each mine, checking each truck to ensure the operator does not clear 100 trucks and records only 30.

This is a tried and proven system followed in sensible mining countries and it will prevent future Kodas. The petroleum ministry has adopted it in India and it routinely auctions oil and gas fields. The Ambani brothers will not allow us to forget the many contentious issues related to the gas flowing from the Krishna-Godavari basin. But no one has criticised the government of corruption in awarding the gas fields to Mukesh Ambani’s company. The reason is that they were won in an open auction.

It is also important to break the monopoly of Coal India and de-nationalize coal mines which were nationalized by Indira Gandhi in 1973. India is the third largest producer of coal in the world but we have suffered immensely in the past 36 years from the lack of competition. ‘Power plant shut down because of lack of coal’ is a common headline in our local papers. Koda is a creation of this system. Efforts to undo it--Coal Mines (Nationalisation) Amendment Act 2000—remain stuck because politicians in the mining states do not want it.

Good societies do not look to heroes. They quietly reform their institutions. The best news is that we have in Delhi a coal minister, Sriprakash Jaiswal, who wants to reform precisely along the lines outlined above. His ministry is ready with a Bill to set up a regulator and open coal mining to competition. The Koda scandal should give him boost, but this reform will only happen if the entire cabinet and Sonia Gandhi put their weight behind it in order to counter the powerful lobby of mining interests, state politicians and bureaucrats.

The word ‘coda’ means the concluding passage in a composition of Western classical music. The coda in Madhu Koda’s story will hopefully see a speedy trial and a deterrent sentence for the guilty. But the really satisfactory coda will be the reform of the mining sector along the lines of the Hoda Committee report. The Koda story teaches that the answer is more reforms rather than less. Not only economic reforms, we need police reforms to make our investigating agencies autonomous; judicial reforms to speed up justice and deter future Kodas; administrative reforms to punish rotten bureaucrats and reward good ones and bring accountability; finally, political reforms to prevent criminals from entering politics. Only then will dharma rise in our nation. -