In the spirit of the CAG calculating ‘presumptive losses’ of lakhs of crores, I take their methodology to its logical conclusion and point out the various areas in which the Govt, and by extension, the people of India, have been losing money.
Declaimer: This article written was originally in September 2012, and some of the data points may be outdated.
How to Calculating CAG
Let us use the previous logic of the CAG in calculating the losses from the Telecom Scam. It took the subscribers and market size built by the telecom industry AFTER the cheaper (post-scam) spectrum and then calculated how much the Govt would have lost if the spectrum had NOT BEEN given away at a pittance. This was a circular logic: at Rs. 16 per minute, we would have a market size that was 5% of the existing one, but the CAG obviously thinks that 900 million people in India could have paid Rs. 16 per minute.
The presumptive loss of Rs. 1.76 lakh crores would have actually doubled the debt of the entire Telecom industry, so the industry would have had to repay TWICE its existing debt with about 5% of the existing revenues. Please remember: since the CAG does not understand the time value of money, we will also ignore the concept.
In the same manner, the Coal Scam is calculated at Rs. 1.86 cr. Since CAG knows just how much coal is lying underground, that was easy. And they have the benefit of hindsight to know the prices and the cost of extracting the coal; since they are all-knowing, they (obviously) know the fees that will prevail in future years. They know all this, but since they don’t know how to discount a cash flow, they assumed the discount rate to be zero. That got them to Rs. 1.86 lakh cr, without which the pink papers would not find it worth a headline.
Using the same logic, I would think that they should now shift their attention to another scam. In Solar energy, sunshine (which is just spectrum by another name) should also be auctioned. This is right now being given away for free. And since the sun is going to be around for the next 7 billion years, well, that is a lot of money….somebody is making a lot of money!!! Anna Hazare ko bulao …!!!
the ratio of corporate profits to GDP in India
I don’t know the ratio of corporate profits to GDP in India, but the US just hit a high of 12% profits to GDP. This is a 100-year high; I think India would be somewhere near 4-6%, giving them about Rs. 6 lakh crores per annum. Well, did you know that one-fourth of that amount, Rs. 1.6 lakh cr (half the turnover of India’s biggest private sector company, Reliance) was made by just one airport company, by the simple act of ‘developing’ real estate in just one city, i.e. Delhi. This uses the same circular logic: the real estate is valued AFTER the infrastructure has come up, and the losses are calculated (obviously) without the benefit of discounted cash flow. And since the cashflows are for 60 years, we can assume that by then, $ 55= 1 Re, because the US would be finished and India would be the next superpower, because the Chinese would be all dead (thanks to their one-child policy) and we would have taken over the world (thanks to our 5- child policy). Think of all the masala dosas and tandoori chicken sold by the shops in the airport to people waiting for their next Air India flight. The profits from all this will actually pay for a full month’s salary to Kingfisher’s gorgeous crew.
If we convert the ENTIRE land owned by Western and South Central railways in Mumbai, into Nariman Point, the Govt of India would earn enough to pay off West Bengal’s debt. I cannot write the number, I am allowed only 2 pages in this magazine…
I have other ideas: how about using the Indian Army to do some moonlighting as security guards? … The ‘presumptive loss’ from having an idle army that has not fought a real war since 1971, is huge. We could also recover our investment in our ‘nuclear arsenal’ by leasing it to some oil-rich country…
Why can’t we let out the REAL Taj for weddings and funerals (after all, it IS a mausoleum!)? Kate Perry and Liz Hurley would pay good money to be wedded at the Taj; haven’t you seen how much Indians pay to be wedded at the Taj (Hotel)? And we can even get good repeat business from Liz…
One more idea: why don’t we sell (or at least tell) the CAG report to the Income Tax Department? The Govt lost all that ‘presumptive loss’, so maybe the Bechara companies made all that money. If we can’t get that money back, at least we can tax it; that alone would cover the Fiscal Deficit, allowing the Govt to give out free CAG reports to the BPL population….why, I have no idea, but Govts are like that!!!
Another few lakh cr (nothing less will do!!!) can come from converting the Yamuna into a drain. People will be forced to buy only Coke and Pepsi, which can be taxed heavily on the grounds that they sell unhealthy drinks. Since water should be free (ask the BJP, they are holding rallies with Delhi’s RWAs to make sure that water remains free and unavailable), but Coke/ Pepsi is not, the Govt will actually make money while keeping everyone happy. The second objective is far superior to even covering the Fiscal Deficit…
If I have not been ‘funny’ enough for you, go read the CAG report…!!!
The “Big Picture”: What They Don’t Teach You At Harvard
A pink paper concluded that since Mr. Rai has a degree in Public Administration from Harvard, he must have the ‘big picture’, which means that he sees nothing wrong in exceeding his mandate and voicing an opinion on matters far beyond his brief.
For example, let us look at his ‘presumptive loss’ calculation in the light of an auditor’s duty: he seems to think that as an auditor, he is ‘the watchdog’ of the nation’s assets, which, rhetorically, is true. But in this definition, he seems to think that he is working for a private company, and comes to the conclusion that “all loss to the Govt is necessarily theft”. This quick, mindless conclusion has been picked up by the mainstream media (which, I suspect, can see through him, but finds him a convenient handle to get the next year’s headlines from, just like they ‘used’ Anna Hazare for a year’s worth of free headlines..).
Unfortunately, a Govt auditor has to first trace the beneficiary of the Govt largesse (loss to WHO?), otherwise, even the MNREGA and the fuel subsidies count as a ‘presumptive loss’, far more serious than the Coal Scam, because it is real cash giveaways rather than some notional future calculation of potential revenue…every tax deduction, even the tax rates, can then be questioned on the same ground.
When management misuses shareholders’ money, it is called theft by the auditor and can get headlined as a ‘scam’. But when Govt misuses or misallocates national resources (including money), that money is sometimes lost to the people of India, its original ‘shareholders’. That is the problem with the ‘presumptive loss’ calculation in the 2G Scam, and the new calculations in the Coalgate Scam. The Govt is not a private organization with a profit-maximizing objective.
A good way to find out this is to take the ‘alternate path’: assume that these fantastic sums of money had actually been collected by the Govt, and work out the revised trajectory that the user industry would have taken. In the case of Coalgate, you have to remember that India’s entire historical stock of power capacity of 200,000 MW, if valued at Rs. 5 cr per MW, would come to Rs. 10 lac crores. Now take the Rs. 1.86 lakh cr of ‘presumptive losses’ and put it in the cost sheet of the industry, then calculate the revised power cost, the economic viability, and the Balance Sheet fundamentals of the Power industry. You might discover that there might have been no industry left at all. Certainly, with existing capital and fuel costs, if the power industry is already the biggest contributor to incremental Bank NPAs, we know that the entire money would have been debited to the Banking system, which would then have to be bailed out by the same Govt, completing the cycle of ‘presumptive losses’.
The long-term tariff structures of the UMPPs were unworkable without long-term FSAs, which is what the mine allocations actually were. So nobody made the stolen Rs. 1.86 lakh cr. That is not to suggest that somebody did not get bribed a (much smaller) amount, but you don’t need the CAG’s fantastic numbers to tell you that. Try getting a house property transferred to understand that all laws would be obeyed, but you would still need to pay ‘file nikalne ke liye’….but that kind of money would not attract the headlines and hysteria of the kind that has become a national pastime these days….