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“Coalgate” May Not Affect Coal Supply and Demand, But Corporate India is Nervous

For background on India’s so-called “Coalgate” scandal that has involved prominent politicians and corporate heavyweight Kumar Mangalam Birla (Chairman of the Aditya Birla Group, which helps run the major aluminum and copper producers Hindalco), read yesterday’s post.

So what happened after former Coal Ministry Secretary P. C. Parakh said that Prime Minister Dr. Manmohan Singh ought to be among the accused? There was mild chaos within government. Ministers of the ruling Congress party, India’s Planning Commission deputy chief, and renowned economist Dr. Montek Singh Ahluwalia criticized the CBI for having named Mr. Birla in the FIR, claiming that neither the Prime Minister nor Mr. Birla should be accused of wrongdoings.

Mr. Birla himself dismissed the charge. Last week he met the Minister of Finance, P Chidambaram, and then told the media that his company had done no wrong.

The Prime Minister’s Office has too rejected the charges of criminality in the controversial allocation of coal block to Hindalco, saying that Prime Minister Singh had approved this case on the basis of “merits.”

The PMO said the proposal had not been rejected in favor of Hindalco at the cost of PSU Neyveli Lignite Corporation. Those supporting the Prime Minister insist that he had taken the decision based on the facts placed before him, and that was that. The PMO also acknowledged that the final decision on the allocation “differed” from the earlier recommendation of the screening committee. “This was done following a representation received in the Prime Minister’s Office from one of the parties, which was referred to the ministry of coal,” the PMO announced in a statement. The PMO also added that the CBI was free to probe the case.

The CBI does not seem to be giving up, having filed a total of 14 FIRs since “Coalgate” began. It is the 14th that relates to the alleged illegality in letting Hindalco access 15 percent of the coal block deposits in Odisha.

The unsavoriness of this situation apart, one question begs an answer: How much of an impact will any “de-allocation” have on India’s economy? Of the 142 blocks that have been allocated since 2004, only one has commenced production. Among the five companies that have been charge-sheeted by the CBI, not even one is producing coal, so analysts think that Coalgate will not have much of an effect on supply and demand on the coal front.

But the bad press on the way business is conducted in India has already had some impact. Now, after a well-known industrialist has been named to the FIR, along with ministers and bureaucrats, it’s a nervous corporate India watching from the sidelines, wondering who is next in line.

Source: MetalMiner