Scandal Poses a Riddle: Will India Ever Be Able to Tackle Corruption?

http://www.nytimes.com/2012/09/16/world/asia/scandal-bares-corruption-hampering-indias-growth.html?nl=todaysheadlines&emc=edit_th_20120916


September 15, 2012

Scandal Poses a Riddle: Will India Ever Be Able to Tackle Corruption?

By VIKAS BAJAJ and JIM YARDLEY

NEW DELHI — His business rivals never fully understood how Manoj Jayaswal got so rich so fast, except that he often seemed joined at the hip with powerful politicians. He hosted them at lavish parties, entertained them at his daughter’s opulent Thai wedding and stood among them at India’s presidential palace, where a year ago he was praised as a leader in the India growth story.

But now Mr. Jayaswal is embroiled in a $34 billion coal mining scandal that has exposed the ugly underside of Indian politics and economic life: a brazen style of crony capitalism that has enabled politicians and their friends to reap huge profits by gaining control of vast swaths of the country’s natural resources, often for nothing.

“Today in India, politicians are so powerful,” said Santosh Hegde, a former Supreme Court justice who recently led a sweeping investigation of a different mining scandal in southern India. “All together, they are looting the country.”



Coalgate, as the scandal is now known here, is centered on the opaque government allotment process that enabled well-connected businessmen and politicians to obtain rights to undeveloped coal fields. Investigators are now looking at whether Mr. Jayaswal and Vijay Darda, a member of Parliament, conspired to fraudulently obtain five lucrative coal allocations. Naveen Jindal, another lawmaker and one of India’s richest industrialists, is also reportedly under investigation.



Even as the scandal has renewed public anger about rising official graft and the state of the economy, Coalgate has provided fresh ammunition for those who say India’s politicians have become so venal and feckless that they are no longer able or willing to address the country’s entrenched problems. The opposition Bharatiya Janata Party, which was already on the defensive because it had been implicated in Mr. Hegde’s investigation, has been so eager to score political points with the latest scandal that it shut down Parliament for weeks with floor protests. It refused to allow any debate — even of Coalgate — or any voting unless the prime minister resigned over the scandal. Almost an entire session was lost.



This sort of political dysfunction is hardly new in India and, in recent years, the economy was booming even as the politicians dithered. But now that the economy is slowing sharply, particularly in the ailing energy sector, analysts say India can no longer afford a government that so flagrantly fails to deliver what it promises.



On Friday, the government approved long-pending proposals allowing foreign retailers, airlines, broadcasters and other companies to enter the Indian market in an effort to shore up the faltering economy.



A decade ago, India’s leaders announced an idealistic slogan — Power for All in 2012 — and pledged to bring electricity to every corner of the country, partly by expanding coal-fired power plants. India still has more than 300 million people living without electricity, and this summer, it suffered the biggest power blackout in history. The scandal in the coal industry, meanwhile, has made it even harder for the country to generate enough electricity to meet its needs.



“Not being able to produce enough power has absolutely been the single biggest bottleneck for economic growth,” said Praveen Chakravarty, chief executive of Mumbai-based Anand Rathi Financial Services.



Unlike other sectors of the economy, natural resources like coal remain tightly controlled by politicians and bureaucrats.



A recent study of contributions to India’s political parties offered a telling insight into the nexus between politics and money. Companies in technology and other service businesses — industries that require few government licenses or permissions — contributed almost nothing. The biggest donors were involved in mining, power and other sectors dependent on the government to obtain rights to natural resources.



India is trying to expand cleaner energy sources but still depends on coal for roughly 57 percent of its electricity. During the 1970s, India nationalized coal and created the state-owned giant, Coal India, now the world’s largest coal company. India liberalized its once-socialist economy in the early 1990s, and the government privatized a handful of coal fields for “captive mining” so that some companies could secure a guaranteed supply of coal, usually for steel or aluminum plants.



But by 2004, Coal India was not producing coal fast enough to provide power needed to keep up with the country’s rapid growth or to achieve the national goal of universal electrification. The newly elected coalition national government, led by the Indian National Congress Party, vowed to open up the power sector, which prompted a rush of applicants for captive coal fields.



Prime Minister Manmohan Singh, however, did not introduce competitive bidding, leading to a murky allocation process. A government screening committee chose the recipients; several former and current bureaucrats and industry officials say its decisions were highly subjective, often favoring applicants with close ties to state and national political bosses. India’s comptroller and auditor general, after examining the committee’s minutes and other documents, issued a scathing report last month.



One former senior official, Surya P. Sethi, who unsuccessfully lobbied Mr. Singh for a more transparent selection process, said a representative of the global mining giant BHP Billiton complained to him that the system was stacked in favor of certain Indian businesses.



“They took the recommendations that suited them,” Mr. Sethi, who now teaches at the National University of Singapore, said about the government. “And they overlooked the recommendations that did not suit them.”



Investigators now say that some of the favored applicants, having acquired the coal fields free, quickly sold them for tens of millions of dollars to steel or power companies. Others simply kept them as an asset and have not yet developed them, even as the country faces blackouts and coal shortages.



“Politicians realized that this kind of coal was black gold,” said E.A.S. Sarma, a former power secretary.



On Thursday, in an effort to regain some of its lost credibility, a government panel reviewing coal concessions announced that it was reclaiming four coal fields from companies that had not made sufficient progress in mining.



Mr. Jayaswal, the businessman, is based in the city of Nagpur, where he has developed a close relationship with the local lawmaker, Mr. Darda. In a statement released by his company, Mr. Jayaswal denied any wrongdoing and predicted his company would be exonerated. “The investigation is on, and the company is fully cooperating,” the statement said. “The truth will ultimately prevail.”



One Nagpur businessman, a longtime acquaintance of Mr. Jayaswal’s, said many people were puzzled at how quickly he had amassed his fortune, despite having set up only one small power plant, even as his other projects remained in planning stages or were just breaking ground.



Mr. Jayaswal is building a large house in Nagpur and hosted his two children’s weddings in Phuket, an island in the south of Thailand. For his daughter’s wedding, Mr. Jayaswal flew in 350 friends, business associates and politicians for an event that was featured on the popular Indian television program “My Big Fat Indian Wedding.”



“He flaunts his wealth, and he lives a rich life,” said the businessman, who asked not to be identified to protect his relationship with Mr. Jayaswal. “He is, in the last five or six years, suddenly into very big money.”



During that period, Mr. Jayaswal was regularly in the company of Mr. Darda, who became a business partner, and other politicians. He has been linked to the powerful opposition leader, L. K. Advani, and one photograph shows him presenting flowers to Sonia Gandhi, president of the Congress Party. Last year, Mr. Jayaswal appeared at India’s presidential palace for the release of a new coffee-table book, “The Global Indian,” which praised his company.



Another businessman, who also has been allotted coal fields, said relationships with politicians served as a “master key” enabling industrialists to gain access to natural resources. He argued that Mr. Jayaswal had merely played by the government’s rules and that banks would lend only to companies with guaranteed access to raw materials.



“If you were in his position, you would do the same thing,” the businessman said, asking not to be identified because his company also received coal fields and did not want to draw attention to himself. “In this country, it’s difficult to survive. Whoever has a master key wants to eat up all of India. Whoever doesn’t have a key is struggling to survive.”

Sruthi Gottipati and Hari Kumar contributed reporting.

© 2011 The New York Times Company

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