OPINION

The Nexus of Corruption: Reliance and Government

September 09, 2008
C R Sridhar

‘A government, for protecting business only, is but a carcass, and soon falls by its own corruption and decay.’ - Amos Bronson Alcott, American Educator.

One of the common myths circulated in Indian mainstream media is about the inherent dynamism of the Private sector, which offers a refreshing contrast to the venal, corrupt and mendacious class of politicians and government officials. The Captains of Industries are sympathetically portrayed as dynamic, hard working and enterprising people who are thwarted by soul stifling regulation imposed by the Government. Unlike the moribund Public Sector, say the business friendly media, the Private Sector is efficient and creates a big pie in the economy. But unfortunately, like all myths, it has elements of truth but deceives us by not presenting the whole picture.

While there appears to be no dearth of books praising the virtues of Business Magnates, there are few books documenting the corrupt nexus between Big Business and Big Government. One of the most remarkable books to emerge in the Indian publishing scene in recent times is Reliance- The Real Natwar written by Arun K. Agrawal. This book is an unflattering study of the behemoth Reliance Group and its alleged loot of public money with the connivance of politicians and bureaucrats in the government.

The spotlight of the book is on the alleged involvement of Reliance Petroleum Limited (RPL) in the Iraq oil-for-food scam. As the author says in his book,

‘This book has its origin, in the compulsion, born of exasperation, experienced by the author to record the failure- or, more accurately, the self-serving refusal – of the Indian political and administrative system to investigate the award of extremely lucrative oil contracts under the United Nations- administered Oil- for-Food programme in Iraq to RPL in transactions manifestly driven by kickbacks/ bribery and bipartisan political patronage.’

Mr Agrawal, a lawyer and activist, has impressive credentials to his credit having exposed corporate-government scams in the past. He filed a PIL against the 1000MW Cogentrix Power Project in Karnataka alleging that the company with a capital of only forty lakh was awarded the power project by the government of Karnataka without any competitive bidding. When the game was up Cogentrix abandoned the project, which had inflated capital costs, saving the Indian public crores of Rupees. He was also instrumental in preventing the transfer of the highly profitable Alamatti Power Project in Karnataka to the Private sector, which was built with public money. As a consultant to Prasar Bharati, he unearthed the cricket telecast scam which saved twenty crores for Prasar Bharati. Justifiably, the author concentrates his ire on government policies, which bills costs to the public while the profits are pocketed by the private sector.

The Oil-for-Food scam

The lingering public memory of this scam as a political fallout of the Volcker Report involving Mr Natwar Singh, his son Jagat Singh, family friend Andaleeb Sehgal, Asad Khan (son of Congress politician) and the Andaleeb-owned Hamdaan Exports Limited is a distorted picture which is complicated by the alleged involvement of the Congress Party named as non-contractual beneficiary in the Volcker Report. But the prime beneficiary of the scam was Reliance Petroleum Industry, which got off scot-free without any investigation whatsoever.

Perhaps it would be necessary to have an historical perspective on the Oil for Food scam to understand the full ramification of the scam. The story begins with the military misadventure of Saddam Hussein in Kuwait. Even though a cease-fire was agreed by Iraq in February 1991, after her expulsion from Kuwait, the Security Council kept in place one of the cruelest sanctions, which caused untold hardship to the Iraqi people. As the International public opinion mounted against the UN sanctions, the UN Security Council decided to lessen the hardship of the sanction by establishing Food for oil programme in 1995 under resolution no. 986 as a temporary measure to provide for the humanitarian needs of the Iraqi people.

The Oil for Food programme allowed Iraq to export oil to parties registered with UN and the use of the proceeds of oil sale by UN to pay for the food and medicines imported by Iraq, after deducting reparation, war compensation and commission. The programme started from 1996 and completed 13 phases until Saddam was toppled in 2003.

However the Oil for Food programme became a hotbed of corruption involving many highly placed UN officials who turned a blind eye to the irregularities of the programme, which led to the skimming off huge sums of money to the relatives of UN officials, Iraqi officials and oil companies all over the world.

The opportunity of corruption lay in the fact that the Iraqi Oil was sold at a price less than international rates. The difference in pricing of amounts actually paid to UN and the prevailing international price of oil was split between Iraqi officials (bribes/ surcharge), political allottees (commission) and the balance of profits to the traders and financiers.

The lid was blown off the scam when a Committee was appointed to go into the murky dealing of the UN programme. This Committee was headed by Paul Volcker who was former Chairman of Federal Reserve (US). The report of the Committee opened the Pandora’s box as Table III of the report identified three non-contractual beneficiaries, which had paid bribes/ surcharge to the Iraqi officials. The fourth beneficiary Mr Bhim Singh was absolved, as he did not lift even a single barrel of oil. In the report the Natwar–Congress combine lifted 2.93 million barrels, while Reliance lifted 15.78 million barrels for which it paid a bribe of US$3.57 million. 1

The patsy

Making scapegoats of lesser criminals is a national pastime while bigger fish go scot-free. In fierce parliamentary debates that followed the disclosure, there were fingers pointed at Sonia Gandhi who had just recovered from the whiff of cordite fumes of Bofors Guns. The BJP targeted the Congress Party for paying bribes and demanded its resignation. Other members asked for a through probe and made impassioned speeches for the punishment of the guilty. As the top leaders of the Congress Party felt jittery a plot was hatched to make a scapegoat of Mr Natwar Singh who was a Minister for External Affairs. In a damage control operation the Congress party appointed Mr R.S. Pathak, an eminent jurist, who served as the Chief Justice of India and also as a judge in the International Court of Justice at The Hague to institute an enquiry into the Oil for Food programme. The terms of reference of the R.S Pathak Inquiry Authority was restricted to two non-contractual beneficiaries, namely, the Congress Party and Mr Natwar Singh. The significant omission was Reliance Petroleum Limited, which was the largest beneficiary of Oil for Food scam.

Mr Natwar Singh whose wrongdoing was minor when compared to Reliance Petroleum Limited was sacrificed on the altar of expediency, as he was not a fundraiser for the Congress party unlike the Reliance Group, which had friends in high places. The commission of 70 lakhs of rupees made by Andaleeb Sehgal certainly involved Natwar Singh who could be accused of using his political connections to favour his son and his crony Andy by providing letters of introduction to the Iraqi authorities. The paltry gain for which Natwar Singh damaged his political future astounded political observers in Delhi. The fact that Natwar Singh was not given the option of disowning his son and leaving political life in blaze of glory sent tongues wagging in political circles. This was indeed strange given the fact that no part of the commission did end up in the personal bank accounts of Natwar Singh. Apparently it was necessary for the powers in the Congress Party to make an example of Natwar Singh and squelch the scandal. Predictably, the Inquiry fixed the blame on Natwar Singh and he was forced to resign.

Parliamentary cover up

In the speeches made by Members of Parliament, the name of Reliance Petroleum Limited never figured in the controversy. If it was mentioned in passing that could be attributed to Mr Sitaram Yechury who to his credit raised the involvement of Reliance in the Oil for Food scam. But even the left party flattered to deceive. At a press conference Prakash Karat of the Left did mention the role of Reliance in the bribery scandal, but there were no coordinated efforts on the part of the Left to bring Reliance within the purview of the Inquiry Commission. There were also reports suggesting that Mukesh Ambani met with the Left leaders but what transpired between them is a matter of conjecture.

All the speeches of the house were directed against the Congress party and Natwar Singh but Reliance Petroleum was spared the attention. A careful transcript of the speeches made at the floor of the Parliament reveals this fact. The Finance Minister, PC Chidambaram carefully avoided any reference to Reliance Petroleum Limited and blew smoke rings. The performance of the seasoned lawyer Kapil Sibal was masterly in suppressing critical facts about the involvement of Reliance in the scam. The BJP also adroitly sidestepped the Reliance issue and harmlessly indulged in verbal pyrotechnics. There was a strange unity among political parties to protect Reliance Petroleum from legal proceedings.2

Tip of the iceberg

The Oil for Food scam was not an isolated instance of Reliance Petroleum Limited walking away from corruption unscathed. There are also other scandals involving the Reliance Group. One of which was the deal involving Panna-Mukta- oil fields - given to Reliance during the Congress government by Captain Satish Sharma who was the Minister of oil and Natural Gas and a close friend of Rajiv Gandhi. The deal was sweetened to benefit Reliance on the specious plea that ONGC’s cost of exploration was inefficient when compared to the exploration costs of the private sector. Further, the royalty payment was on the basis of fixed rate instead of ad valorem rates, which would be beneficial to the government. This is evident as oil is a non-renewable asset and subject to upward revision of prices. The loss to the national exchequer was to the tune of thirty billion US dollars if the price of the barrel is fixed at US$80 with reserves at around 120 MMT. If the additional gas reserves of 1.9 trillion cubic are calculated then there is another staggering loss of about another 10 billion dollars.

The Comptroller and Auditor General adversely commented on the decision, saying no in depth analysis was carried out by the Ministry to arrive at such conclusions. Satish Sharma was later subject to a CBI probe, which said that there was a prima facie case indicating assets disproportionate to known sources of income

For future deals such as KG basin the Royalty payments were changed from fixed rate to ad valorem rates of 5% to 10% of sale realisation. As a result of absurdly low rates of royalty charged the government lost heavy revenues to the tune of over one hundred billion dollars, which was handed on a platter to Reliance as windfall profits.

Other controversies have dogged Reliance such as jacking up capital costs from $1.5 billion (2002) to $8.4 billion in 2006 with respect to the Krishna- Godavari project. The amount represented a massive scam, as gold plating of costs would be recovered before sharing of any production with the government.

The Reliance Group has also shown ingenuity in alleged tax evasion of customs duty of 120 crores in its illegal import of machinery for its PTA plant. The matter has been pending in the courts for over twenty years and has not seen the light of the day.

As the author sums up, the secret of Reliance Group becoming the largest conglomerate in the country could be attributed to,
‘financial engineering, propping up of its own shares, issuing shares of new companies at premium to the public and then merging the companies and, of course, the oil bonanza handed over to it by the government.’3

A dangerous collusion

When the interests of Big business coincide with the personal interests of politicians and bureaucrats of the government, then it can be safely assumed that public good or national interest would be in an irreversible terminal decline. As Timothy P. Carney in his book The Big Rip-off: How Big Business and Big Government Steal Your Money says,
‘Today's largest corporations have mastered the art of working with government officials at every level to stifle market competition. They reap billions through a complex web of higher taxes, stricter regulations, and shameless government handouts.’

He adds ominously that when the players in big business and big government unite, the end result is one of consumer misfortune, where prices are artificially inflated, fewer substitutes are available for sale and there are huge barriers to market entry for small businesses entrepreneurs signifying the death of free competitive markets.4

Apart from creating a stifling monopoly, which destroys competition, the coffers of the state dry up when it hands out national resources for a song and forgoes opportunity to collect revenues. When the state is not able to fulfill its constitutional obligation on account of paucity of resources, it loses its legitimacy in the eyes of the people and becomes inherently unstable.

The important achievement of Arun Agrawal’s book, Reliance - The Real Natwar is to show that it is bad economic policy to substitute the invisible hand of the market with the greased palm of corruption. For this reason alone this book should be read and reread without the ideological blinkers in our mind.

-------
1 For more details refer to Chapter 1 - Scam - pages 23-49-Reliance The Real Natwar- Arun Agrawal- Manas Publications- edition 2008.
2 Refer to chapters 8 and 9 at pages 127 –251 covering parliamentary debates.
3 For details on oil related scams of Reliance refer to chapter 7- the Reliance Saga on pages 89-126
4 Human Events.com- "New book reveals Big Business scams"-Ms Evans- 20/07/2006

Sridhar is a Koshy's regular, a Tinto Brass fan, and a cynical Bangalorean
eXTReMe Tracker
Keep reading for comments on this article and add some feedback of your own!

The Nexus of Corruption: Reliance and Government

Article

Author: C R Sridhar

 

Comments! Feedback! Speak and be heard!

Comment on this article or leave feedback for the author

#1
Aijaz Hassan Mansoor
September 9, 2008
06:23 AM

Very well reviewed Mr.C.R.Sridhar.Yes i've heard of this book and and also read Arun Agarwal's articles published in the Indian Express during the early 1980's.Had you gone the Archieves of the Indian Express you would have got a wealth of information on Reliance published by Arun Shourie and S.Gurumurthy.They showed documentary evidence as to how Reliance under invoiced the import of plant and machinery for their Patalaganga Plant for manufacturing P.O.Y. but imported the plant more than the installed capacity that was required.They even went to the extent of having duty structure changed in the 1981 budjet to suit their requirement thereby causing huge loss to smaller players in the manufacuring of P.O.Y.Indian Organic Chemicals(the B.M.Ghia Group) located near Manali Industrial Belt in
Ennore Madras had to close down due to manipulated excise duty structure by Reliance.Whether it is Congress party or the BJP Reliance does not discriminate in its treatment to the party in
power.
No wonder they quickly went into the lists of notorious magazine called the FORBES listings of 500 worlds richest industrialists.
Dhirubhai Ambani actually started the OPEN corruption regime by not only buying politicians for manipulating everything in the Government but also went aggressively with beaurocrats.
Its very unfortunate to know that a person of Arun Shourie's caliber to have gone and sold the two highly profit making companies like VSNL and Indian Petrochemical complex Ltd in Baroda privatised.The former is owned by Reliance and the latter by Tata's.Both the titled as"captains of Industry siffoned off a huge capital reserve that existed.The evidence was the nose diving of share price in the BSE and NSE.Tata's expanded TCS and TATA Elxi and Ambani's began their ongoing Reliance Petroleum and Reliance oil exploration.
If you take the costs of mobile service providers India's biggest network is still BSNL whereas take the performance criteria of R.Com and Tata Indicom.Their profits come not from net operating profits but by manipulations with TRAI and manipulating Customers billings (looting)
the tragedy of the Indian middle psyche is to hanover all government run Institutions to the private sector for efficient working little realising that the richest owner of money is the Government itself and not the private sector.
The Indian middle class is the typical description of what Karl Marx had said of the English middle class as 'Hopelessly Petty Bourgeois'in their outlook,attitude culture,perceptions and a populace not only with blinkers to their eyes but also to their thinking process.It is a tragedy that the indian Corporates are looting both the public and the Government and the great Indian Middle class instead of voicing protests have joined in the band in issues that are not of importance.
May i once again impress upon the need for an article of this nature to be published magazines that reaches out to people than a very small restricted audience.You will be helping people educate if articles of such nature are published in very large circulated magazine.
Please tell the Licence holder of this Portal Desicritic that when we write the margins in this colums in not properly alligned consequently we have to constantly keep scanning from left to right and right to left.The owner of this portal perhaps will not bother because he is only interested in your article and makes money out of your writing.Like the CPM in West Bengal inspite of its performance wants the Nano project like wise knowing that this portal caters to a very very small readership you continue to to contribute inspite of its hopeless column mangement.

#2
Bystander
September 9, 2008
10:13 AM

The author CR Sridhar has gone beyond the usual airbrushed-hagiography resorted to by the mainstream press and done well to shine the spotlight on Reliance,a company founded by the late Dhirubhai Ambani, a man often feted in the business press as a hero.The role of Reliance in the almost now forgotten Natwar Singh episode shows the extent to which Reliance had its fingers in many pies.

Reliance like its colourful founder has had its share of controversies.It would well do to remember that this was a company that laid its hands on some of the most difficult to get permits and licenses during the days of the licence raj.Some people would remember investigations in the 80's by journalists into the Reliance share buyback scandal during which the Bombay stock exchange was shut for three days.It was revealed that companies registered in The Isle of Man under various names such as Lotus,Crocodile and Fiasco(how apt)by several people under the VERY common surname of Shah actually helped Dhirubhai until recently a yarn trader and only a budding industrialist get hold of the money needed to stop the share-bears in their tracks.

Some years later when Unit Trust of India sent some Reliance shares to its registrars for transfer, it received some other shares - with different numbers - in return.The markets jumped to the conclusion that there was something fishy - perhaps even fake shares in play.SEBI even conducted an investigation into the matter and found there were lots of discrepancies in the numbering of shares issued and the share transfer process was found to have many loopholes.It raised questions over share duplications and other accounting anomalies that appeared to disadvantage minority shareholders .SEBI asked Reliance Consultancy Services, the group's registrar, to shut shop.As far as Reliance was concerned ,the company subsequently pleaded guilty to technical breaches and clerical errors .

...beleive that folks?...."clerical errors"??

Anyway we are a people who like "clerical errors"...that is why Pramod Mahajan released a commemorative stamp in Dhirubhai's name in December 2002.

More recently Reliance Infocomm ran into trouble when the State-owned company BSNL complained to the Department of Telecom (DoT) that the private operator was routing international long distance (ILD) calls like a local call to avoid payment of access deficit charges (ADC).DoT promptly issued a notice to Reliance imposing a Rs 150-crore penalty for licence violations.

There are many such examples....but the point I want to make is that its amazing how the middle class and the rest of us accept all of this unthinkingly.....we still somehow beleive in the animal magnetism of "free market" and business.It has something to do with our own twisted class aspirations...Its a variation of the American Dream...we all want to become like Dhirubhai....if he could do it so can we....

We ACTUALLY beleive in his homilies...

Think big, think fast, think ahead. Ideas are no one's monopoly

You do not require an invitation to make profits

Don't give up, courage is my conviction

Pursue your goals even in the face of difficulties, and convert adversities into opportunities

If you work with determination and with perfection, success will follow

One is reminded of the old Tata slogan which used to be We also make steel....perhaps Reliance should change its own to
We also beleive in clerical errors




#3
Bengali Babu
September 9, 2008
12:27 PM

I recall an issue of India Today in 1981-82 which had the picture of Pranab Mukhergee which on the cover said'What does Pranab Mukhergee says these days and when you turn the page inside it said"Only Vimal"He and Indira Priyadarshini(Gandhi)made a mockery of the Parliament and the people.Well now it seems the turn of Sardarji to to the same.

#4
Active Voice
September 10, 2008
11:24 AM

The nexus between the Corporate world and the politicians is already well documented.Bureuocracy,particularly the IAS,work as agents for both,the political leaders and big business people.There is no escape from this malady.This is a sine qua non for a democracy.One has to live with this type of curruption.
The 'Young Turks',as they were then called, informed the nation,in a statement in Parliament,that three Cabinet Ministers and three Chief Ministers were in the pay rolls of Birlas.
The question is how much a nation can bear the burden of Corporate curruption.
Reliance has come up in just 25 years as the biggest business group in India.Reliance cultivated friendship with leaders who had ranking in their respective political parties and then they purchased Senior Officers in the Government.They therefore do not have any fear of being prosecuted for violation of any Rule or Law. In fact Officers in the Government seek favours from Reliance Executives to get prized postings in the Government.At one time a Secretary sought the favour of Reliance to become Chief Election Commissionar but the news was flashed then that the Chief Ministers of Andhra and Tamil Nadu had put pressure on the then Prime Minister to make him so.Who should hold the key portfolio in the Cabinet or which particular person should be the Secretary of the Ministries affecting the Reliance Group, is decided by the Reliance,then why Reliance should not grow more than other business groups.
One would remember of the fiasco of Unit Trust of India shares in 90's when there was a run on its Master Shares.It was created by Reliance with the active aid and assistance of the Chief Executive of Unit Trust.Reliance got many times more money than it had invested while Unit Trust lost.Govt.of India announced a relief package to help the people,the money came from the Budget Grant.No one questioned Reliance. At that time the Finance Minister was the most honest and upright person who is leading us to the Civil Nuclear Deal,where again Reliance has to gain much.
In the end ,Ifeel, if Democrcy has to be cherished, Corporate evil has to live with it.

#5
Panjabi Thug.
September 11, 2008
08:43 AM

Dear Mr.AAAAAAAAAAAAAAAAAAAAAAAman LLLLLLLLLLLLLLLLLLLLLLLLLLLLamba.Do you ever notice the inconvinience of your blogs allignment??????????????????????Active Voice's writings is difficult to read and moreover why your blog alone and not others.Does your Chairman & Chief Mentor of Infosys tolerate shoddy work from you???I guess not because if you pay scant attention he'll f**k your A*s and dump you.Like wise why don't you have the same attitude towards this blog.You must treat your Author with great amount of dignity and respect and not treat him so shabbily.Mind you your blog survives because of commentries and you ought to be paying a lot more respect to them too.[EDITED - RACIST]The least, please note once again the least you can do is respect a distinguished author, scholar, commentator, and a great humanist like C.R.Sridhar

#6
Aaman
URL
September 11, 2008
10:27 AM

Thank you for your feedback. If you have specific suggestions about alignment or design, we'd be glad to consider them.

#7
Aaman
URL
September 11, 2008
10:30 AM

I'll be sure to share your high regard for Sridhar with him when we meet for an evening soiree this week. I am sure he will appreciate your sentiments

#8
Ruvy
September 12, 2008
04:18 AM

Aaman,

Not to seem rude, but I've been wondering when you (or Phil Winn, now that he will have a few more nanoseconds in his day) could change the format at Desicritics a bit, to make it a titch more like Blogcritics. You could perhaps store more articles on the front page the way Blogcritics does - or in the alternative, you could run a site in Hindi with this format that would be accessible to those who have more trouble with English than the fine writers and commenters here. By the way, that is not meant in any sense of sarcasm, unlike the words of the Panjabi Thug above. You do have a bunch of fine writers here. And I sense that there is a large Hindi market to be tapped as well. Temporal, who I'm sure could write in Urdu, could run a sister site in that language. Talk to Eric about the huge market on the sub-continent.... 1.4 billion people.....

BTW, do they still have soirees in India? My, I thought that went out with the 1940's. Live and learn!

Seriously, give my warm regards to Sridhar if/when you see him next. He's a fine writer and a sharp fellow.

Regards to Deepti,
Ruvy

#9
Aaman
URL
September 13, 2008
02:56 AM

Ruvy, indeed, we should be able to get some design work done - suggestions are welcome. Will pass on your regards to CRS, you're invited:)

#10
Proudiocian
URL
January 16, 2009
11:19 PM

Hi,
We are PSU oil companies. India has seen an unprecedented Oil Strike for 3 days. You all must have got angry with us. But then as writers and thinkers you must be thinking there is something beyond that meets the eye. One of that is what you have reviewed here. We too feel that Govt deliberately refused to budge an inch and accept minimum legitimate demands only to show PSUs in a bad light to pave the way to hand over the assets of the country to one power Private group. And we all know where power flows from ? The gun barrel or money?

We are linking up with you by hosting the link. Is there a way for you to link with us? Regards

Add your comment

(Or ping: http://desicritics.org/tb/8201)

Personal attacks are not allowed. Please read our comment policy.






Remember Name/URL?

Please preview your comment!