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LATEST NEWS UPDATES | A misdirected audit

A misdirected audit

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published Published on Aug 18, 2012   modified Modified on Aug 18, 2012
-The Indian Express

When the Delhi Development Authority had the sole right to build houses in the capital, it was unable to meet the demand from an expanding population. If private builders stepped in to build where the DDA was not doing so, is it a fair calculation to say that the profit they could make was a loss to the government exchequer? The CAG’s estimate of loss to the government in its report on the allocation of coal blocks makes a similar mistake. Ever since the Coal Mines (Nationalisation) Amendment Act of 1976, Coal India Ltd (CIL) has had a monopoly on all coal blocks. Between June 2004 and July 2006, the coal ministry allocated 142 of these blocks to others, of which 57 have gone exclusively to private parties. This does not include any blocks where CIL had plans to mine.
In the same period and beyond, CIL’s production level began to dip due to factors like environment, land acquisition and lack of connectivity. These were also the problems faced by many of the new developers. Yet, the auditor presumes there has been a loss to the government exchequer because of the allocation of these 57 coal blocks, setting a value of Rs 1,85,591 crore to it.

This is what happens when an economic question is reduced to book-keeping. A major shortage of coal has developed as the GDP growth rate accelerated from the 1990s. The shortage has crippled the power, steel and cement sectors. A Plan panel estimate says that about 18,000 MW of power capacity added in the last fiscal is unused because there is no coal to run the plants. If the auditor had linked the slow development of mines by both CIL and private parties to the potential loss in GDP, the debate would have moved on a far more useful course. Trying to link an administered price of coal to the quantity that would be mined from these blocks over their life does nothing to guide the policymaker in the allocation of natural resources. The telecom spectrum price was discovered in an auction. The real theft lies in the coal price set by CIL, for which The Children’s Investment Fund has dragged it to court. That is the question the auditors should have tracked.

The Indian Express, 18 August, 2012, http://www.indianexpress.com/news/a-misdirected-audit/989696/


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