Cover Story

Building euphoria

Print edition : May 17, 2013

Narendra Modi at a primary school in Banaskantha in 2011. The State's spending on education is falling. Photo: PTI

At Mundra Port, wheat being unloaded. The CAG has reported breach of land allotment conditions by MPSEZL. Photo: AMIT DAVE/REUTERS

At the wholesale market in Ahmedabad. Falling farm income has led to a drop in employment in agriculture. Photo: AMIT DAVE

This 15-year-old blood cancer patient died in the car park at the Civil Hospital in Ahmedabad on April 12. He was turned away the previous day on the plea of no vacant bed. The State's spending on health as a share of total expenditure has reduced from 4.25 per cent in 1990-95 to 0.77 per cent in 2005-10. Photo: SAM PANTHAKY/AFP

Nearly a third of the population in the State lives in poverty. Here, at a home for the destitute in Ahmedabad.

But in Modi’s Gujarat the difference between development and darkness is all too visible to those who care to see.

NARENDRA MODI may have won three consecutive elections and ruled Gujarat for more than a decade after he was posted there almost as a night watchman, to borrow a cricketing expression. He may have mobilised a massive fan following that is shouting to catapult him into the Prime Minister’s post, but those who have diligently observed the rise of the Bharatiya Janata Party in Gujarat in the early 1990s will be able to see the difference between euphoria and glaring darkness.

When Modi went about his Sadbhavna fasts ahead of polls last year, it reminded me of the phrase “society of the spectacle”, the title of a book by the French writer Guy Debord. However, that was just one more in a series of acts that Modi has performed and mastered in an attempt to get the maximum media attention. In his book NaMo: A Political Life, Kingshuk Nag narrates how in June 2005 Modi trumpeted the news of Gujarat State Petroleum Corporation Ltd (GSPCL) having discovered 20 trillion cubic feet (tcft) of gas in the Krishna-Godavari basin, off the coast of Andhra Pradesh, valued upwards of $50 billion. Less than eight years later, the Directorate General of Hydrocarbons (DGH) punctured the bubble when it declared that the find was only about 2 tcft.

It is of little surprise that the audit report of the Comptroller and Auditor General (CAG) for the year ending March 31, 2011, states, “[D]uring 2006-2011 the total revenue from trading of gas was Rs.19,245.39 crore and revenue from sale of its own production of gas and oil was just Rs.1,563.63 crore, which indicated that GSPCL was focusing mainly on trading activity rather than production activity.”

In projecting himself as a political leader who dreams of fast-paced capital-intensive development and who loses no time in claiming achievements, Modi seems to have beaten the old guards Chimanbhai Patel and Keshubhai Patel. Both had harped on claims, self-imagined, to “Chhote Sardar” (in the mould of Sardar Patel) and “Sachche Sardar” (the true copy) status and infused the Gujarati political discourse with aggressive idioms in the name of asmita (self-respect and pride). Modi was quick to shift gears from his projection as “Loh Purush” to that of “Vikas Purush” and redirect any uncomfortable questions by couching them as “insult to you, five/six crore Gujaratis”. Two key phrases came in handy from the milieu of economic liberalisation: “good governance” and “investment friendly”. However, probing beneath the surface of the lofty claims of economic growth, development and professionally managed public sector undertakings (PSUs), one finds that development in Gujarat has not been “sarvasparshi” (all inclusive) and “sarvangi” (holistic).

Infusing ‘professionalism’ into State PSUs?

Speaking at the India Today conclave in March, Modi patted his own government for having brought “professionalism” into the functioning of State-run PSUs. In the same month, the CAG audit report on the PSUs, which was tabled in the Assembly, stated, “Though the PSUs were earning profits, there were instances of deficiencies in financial management, planning, implementation of projects, running [of] their operations and monitoring. A review of [the] latest three audit reports of the CAG shows that the State PSUs incurred losses to the tune of Rs.4,052.37 crore and infructuous investment of Rs.166.77 crore, which were controllable with better management.”

After making this remark about controllable losses and infructuous investments, the CAG report states, “The above losses pointed out are based on test-checked audits of PSUs, and the actual controllable losses would be much more.” During the last six years, out of test-checked audit, controllable losses in PSUs amounted to almost one-third of the net profits shown on the books, and year-on-year data show that controllable losses have not declined.

Actually, such an audit paragraph talking about controllable losses and infructuous investment has remained a regular feature in CAG audit reports (commercial) on Gujarat for quite some years. Should we not conclude that despite several reminders by the CAG, no efforts have been made to put better management and professionalism in State PSUs? However, a detailed reading of the CAG audit reports shows that the Gujarat “model of development”, leveraging public resources for private profits, was a story of robbing Peter to pay Paul.

The latest CAG audit report scrutinised a gas transportation agreement that Gujarat State Petronet Ltd (GSPL) entered into with Reliance Industries Ltd in March 2007. During audit scrutiny it was found that by “deviating from the agreed terms of recovery of transportation charges as per this agreement, GSPL passed undue benefit of Rs.52.27 crore to Reliance Industries Ltd.”

The CAG’s performance audit on GSPCL in the audit report for the year ending March 2011 showed that GSPCL had failed to safeguard its interest by the non-insertion of a clause for recovery of “Take or Pay” charges in contracts for the sale of gas “with 25 to 36 customers out of 38 to 47 customers”. This caused GSPCL a potential revenue loss of Rs.502.19 crore. The audit scrutiny had also noticed that “though it purchased gas on spot price, during 2006-2009, it sold the gas at a price which was lesser than the purchase price by Rs.5.23 to Rs.430.79 per MMBTU [million metric British Thermal Units], which resulted in extension of undue benefit of Rs.70.54 crore to a private entity, Adani Energy (Gujarat) Ltd.”

The CAG report for the year ending March 2010 showed that “GSPCL had shown undue favour to Essar Power Ltd and Gujarat Paguthan Energy Corporation Ltd by not recovering Take or Pay charges of Rs.47.97 crore and penalty of Rs.3.59 crore for failure to lift minimum quantity of gas”. The same report also indicted GSPL for passing an undue favour of Rs.11.18 crore to Torrent Power Generation Ltd by not adhering to the terms of the gas transmission agreement.

The CAG audit report for the year ending March 2008 indicted GSPCL for flawed contract management, which resulted in undue benefit for Essar Oil Company and losses amounting to Rs.106.71 crore for GSPCL because of short recovery of liquidated damages from Essar due to late mobilisation of the drilling rig. GSPCL also unduly favoured Essar by accepting a much lower performance bank guarantee.

Similarly, Gujarat Urja Vikas Nigam Ltd (GUVNL) entered into a power purchase agreement (PPA) with Adani Power Ltd (APL) for 1,000 MW electricity at a tariff of Rs.2.81 a unit from the Mundra power project. The scheduled commercial operation date for the project was February 5, 2010. The CAG report observes that APL synchronised unit 1 on May 23, 2009, and declared the unit commercially operational on August 4, 2009. However, instead of commencing power supply to GUVNL, APL sold 243.98 million units of power to third parties. Audit scrutiny revealed that while GUVNL recovered a total penalty of Rs.79.82 crore for APL’s failure to supply power and for the short supply of power against GUVNL’s entitlement, it indulged in short recovery of penalty, to the tune of Rs.160.26 crore, by not adhering to all the PPA terms and passed of an undue favour to Adani.

More shocking is the State government’s reply, filed in June 2012, to this audit observation. Instead of defending the State PSU’s interests, the reply adopted a neutral tone and tried to justify certain deductions to Adani. In response to the reply, the CAG report states, “We do not accept the reply. The penalty was recoverable as per terms of PPA…. Hence the contention that certain deductions were allowed from the penalty as sufficient transmission system could not be made available to APL was not convincing. Thus, the fact remains that non-adherence to the terms of the PPA led to short recovery of Rs.160.26 crore and passing of undue benefit to a private firm.” It is perhaps no wonder that the same private firm was the sponsor of the Wharton event in the United States in February this year. It withdrew its sponsorship when Modi was “dis-invited”.

Land allotment to private corporates

While the latest audit report on PSUs highlights the above instances of “professionalism”, the CAG audit report on revenue receipts presents details on government land allotted to private corporates under favourable terms. The CAG shockingly reported that the department did not have consolidated data of alienated and unalienated government land and the status of alienation proposals received by Collectors—approved, rejected and pending cases. The State that enthusiastically invites investment through Vibrant Gujarat Summits does not have a consolidated database when it comes to producing the transactions for audit.

A department that is so eager to facilitate investment was evasive when it came to providing the CAG access to files relating to all 1,262 cases of allotment of government land. The CAG noted that the department produced only 594 case files for audit. CAG auditors persisted and in correspondence in April 2012 asked the department to put on record the reasons for the non-production of the files, but these efforts were met with a stony silence.

Audit scrutiny of land allotment records revealed that no orders/instructions were issued for determining the qualifications of allottees or for inviting applications, that allotments were considered in respect of only those who applied, that prices were fixed by various committees, that the norms prescribed for fixing the price of land were found to be unrealistic in some cases, and that the norms were not adhered to in some cases.

The CAG highlights the case of allotment of 8,53,247 square metres of land at Hazira to Larsen & Toubro for setting up facilities for the manufacture of Super Critical Steam Generators and Forging Shop for a nuclear power plant. While the District Land Valuation Committee (DLVC) had recommended a rate of Rs.1,000/1,050 a square metre, the State Land Valuation Committee (SLVC) had recommended a rate of Rs.2,020 a square metre in September 2007. The Cabinet, in February 2008, granted a special concession of 30 per cent on the value of land fixed by the DLVC and allotted the land at Rs.700/735 a square metre. Bolstered by this, L&T applied for 12.14 lakh square metres for the expansion of the project in August 2009, and the DLVC this time fixed the rate at Rs.2,800/2,500/2,400 a square metre. As per the process laid down, the Revenue Department should have gone in for the SLVC-fixed rate. However, in consultation with the Principal Secretary, the Finance Department and the Chief Secretary, it instead proposed to apply the same concessional rate of Rs.700 a square metre, and the Cabinet approved the allotment of 5,79,577 square metres of land.

This extension of undue favour to L&T not only resulted in a loss of revenue to the extent of Rs.128.71 crore to the State exchequer, but also had a ripple effect where a corporate that had been sitting on encroached government land in the vicinity at Hazira came forward to get the occupancy regularised at a “concessional” rate. By applying similar rates to Essar Steel, extending an undue benefit to it, the department suffered a loss of Rs.238.50 crore.

The CAG has also highlighted the breach of allotment conditions by Mundra Port and SEZ Ltd (MPSEZL; promoted by the Adani group). It stated that only 98.66 lakh square metres out of the 5.47 crore square metres of land allotted during the 2005-2007 period were used by the company until December 2011. The CAG reminded the Land Revenue Department that the Collector was empowered either to levy a penalty or to take back possession of the land so allotted if, within two years from the date of allotment, it had not been put to use for the purpose for which it was allotted.

The CAG audit in July 2012 pointed this out, but the government sought to remain unresponsive on the matter until September 2012. The audit found that MPSEZL had entered into 14 lease agreements, leasing out an area admeasuring 4,84,326 square metres during the December 2008-November 2011 period. However, MPSEZL had sought permission from the Collector only in one case, by paying a premium of Rs.40,000, and hence the other 13 lease deeds were found to be irregular.

In March 2012, while answering a question in the Assembly, the Revenue Minister stated that Adani was allotted these lands for the Special Economic Zone at rates ranging from Re.1 a square metre to Rs.32 a square metre. However, when Adani transferred these lands to other companies, it charged rates ranging from Rs.600 to Rs.737 a square metre.

The activities carried out so far by the Adani group on a portion of the land allotted to it had severely impacted the fragile coastal ecology by decimating huge tracts of mangroves, fishing harbours, grazing lands and inter-tidal mudflats. A report submitted on April 18 to the Union Ministry of Environment and Forests by a committee headed by Sunita Narain of the Centre for Science and Environment stated that the Adanis had flouted environmental norms. The report recommended imposing a fine of Rs.200 crore and cancellation of the environment clearance for the Adani North Port project.

The CAG had carried out a similar performance audit on government land allotment six years ago, in 2005-06. The main recommendations asked the government to formulate a policy for allotment/disposal of land with a prescribed ceiling for the area to be allotted and to evolve a suitable monitoring mechanism to ensure utilisation of the land for the intended purpose within the specified period. The government has ignored both the recommendations for more than six years now.

Land distribution to landless agricultural labourers

However, when it comes to distributing to the needy the surplus land taken over under the Gujarat Land Ceiling Act, the Revenue Department’s performance has been poor. As noted in the CAG audit report (civil) for the year ending March 2011, “[S]urplus land of 15,587 acres taken over by government was not distributed among the needy agricultural labourers of S.C./S.T. and other weaker sections.” When this was pointed out, the Commissioner, in his reply in April 2011, attributed this to the fact of a portion of the land being under litigation, but failed to furnish the details of the actual area under litigation when they were called for. The audit also observed that out of 1,003 beneficiaries who were allotted such surplus land during 2008-2011, 520 beneficiaries (52 per cent) alone were given financial assistance, Rs.5,000 a hectare, to enable them to purchase agricultural implements, up to March 2011.

The growth in Gujarat led by the infrastructure and petroleum sectors wants to pursue a single-point agenda whereby governance means to wipe out people’s aspirations, to define what constitutes development for them. Consider the example of farmers of Vagra and Bharuch, whose agricultural lands have been acquired for the “Petroleum, Chemicals and Petro-Chemicals Special Investment Region” at Dahej. These farmers were told for decades that it was to irrigate their land that the government was building the Sardar Sarovar Dam and canals. Now, the Special Investment Region eats up 14,927 hectares of land that falls under the command area of the Narmada dam. What sort of planning is this? Well, in Gujarat they call it “growth that excludes”.

Gujarat has also displayed eagerness to alienate commons such as grazing land and wetland and allot them to private corporates, at times in the face of sustained resistance even from MLAs. In total disregard of pastoral livelihoods, the State government passed a resolution on May 17, 2005, to bring “wasteland” under cultivation, inviting big corporate houses and large farmers to initiate corporate farming in a significant way.

Increased dependence on borrowings

On the issue of fiscal discipline, the CAG report on the State’s finances for the year ending March 2011 stated, “The average returns on government’s investments in statutory corporations, rural banks, joint stock companies and cooperatives was 0.25 per cent in the last three years, while the government paid an average 7.67 per cent interest on its borrowing during 2008-09 to 2010-11.” The CAG also noted that increasing fiscal liabilities accompanied by a negligible rate of return on government investment and inadequate interest cost recovery on loans and advances might lead to a situation of unsustainable debt in the medium to long run. A decade back, the CAG audit report for the year ending March 2001 had pointed out that as a result of resorting to indiscriminate market borrowings, Sardar Sarovar Narmada Nigam Ltd (SSNNL) had spent 22 per cent of the expenditure incurred until then on debt servicing and interest payment. In the last 11 years also, SSNNL appears to have spent a considerable amount on debt servicing and interest payment, so high that for the period 2001-2006 it amounted to 55 per cent of the money spent on the project during the five-year period. Kingshuk Nag in his book traces the similar imprudent finance mobilisation that GSPCL has resorted to in recent times.

There has been no change despite the caution from the CAG. Its latest audit report reveals that “the fiscal deficit of Rs.11,027 crore in 2011-12 was met out from a net borrowing of Rs.15,083 crore”. The CAG remarked that “an increase of 41 per cent in the market borrowing in 2011-12 over the previous year for financing the deficit would lead to increased interest burden for coming years”.

In the past, increasing expenditure on interest payment and debt servicing had resulted in a decline in developmental expenditure. It appears that the State is so committed to a neoliberal growth trajectory that it is not bothered about the diminishing social commitment and poor performance on social indicators.

Decline in developmental expenditure

It would be pertinent to understand the inverse effect of the rising expenditure on interest payment and debt servicing on the State’s developmental expenditure as seen in Gujarat in the past few decades. In a recently published research paper, “Analysis of State of Education in Gujarat”, Sourindra Ghosh writes that throughout the 1990s, interest payment and debt servicing as a proportion of total revenue expenditure in Gujarat had remained constant or increased marginally, which reflected in a stable proportion of developmental expenditure. However, Ghosh notes that after 1999-2000, the proportion of interest payment and debt servicing started increasing rapidly and in 2005-06 it stood around 27 per cent, which was much higher than the average of all States combined. Ghosh reminds us that it was in this period that the deterioration of relative spending on development as a whole and education in particular was observed.

Comparing Gujarat’s developmental expenditure and spending on education with those of other States, Ghosh notes that the rate of fall has been higher in Gujarat. Ghosh reports that Gujarat’s expenditure on education as a proportion of its gross State domestic product (GSDP) has fallen below the combined States’ level in 2000-01 and is falling at higher rates since then.

Behind in public health

Analysing the status of public health in Gujarat, Sandeep Sharma notes that health expenditure as a share of total expenditure was lower than the all-State average for the period 1999 to 2010, and it was much lower than other States with comparable economic growth, such as Tamil Nadu and Maharashtra. Sharma notes that health expenditure as a share of total expenditure had reduced from 4.25 per cent in 1990-1995 to 0.77 per cent in 2005-2010. In terms of ranking, Gujarat occupied the fourth position from the bottom during 2005-2010, and in the immediately preceding period it occupied the second position from the bottom in terms of allocation for health in the State budget.

Jobless Growth

Atul Sood points out in Poverty Amidst Prosperity (Aaakar Books, 2012) that the services sector’s growth in Gujarat in the last years of the decade of 2000 was 11 per cent and this sector’s contribution to overall growth was 48 per cent. Sood argues that employment growth in this sector (a meagre 5 per cent during the 2005-10 period) happened in urban areas and on account of the massive growth of casual workers. Overall rural non-farm employment figures from Gujarat do not report a very happy account.

Even as Gujarat claims to have a miraculous agricultural growth, Sood reports that between 1993-94 and 2005-10, income from agriculture fell by nearly 50 per cent, contribution by industry was almost stagnant, and the services sector’s contribution to income increased by nearly 10 percentage points. The falling income from agriculture was accompanied by changes in employment in agriculture declining by seven percentage points.

Poverty Amidst Prosperity reports that nearly a third of the population in the State even today lives below the poverty line. Almost all big cities and towns in Gujarat have witnessed infrastructure projects such as flyovers and riverfront development being undertaken with enormous zeal, with Central government largesse under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). However, when it comes to providing rehabilitation and housing security for the urban poor, the State has performed abysmally.

The CAG’s audit report on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) puts Gujarat in the list of States that reported persistent and widespread shortage of gram rozgar sahayaks (village employment assistants). The CAG also noted that there was a shortage of technical assistants at the State level (54 per cent), and for the districts the shortages ranged between 8 per cent (Dahod) and 70 per cent (Ahmedabad).

Further, the audit reported that in all 150 gram panchayats selected as sample from six districts, documented annual plans for MGNREGA works had either not been prepared or were incomplete. Job card application registers had also not been maintained. Audit scrutiny revealed that online entries of employment demands were made by entering any date within 15 days before the commencement of work. The CAG argued that this was purportedly done to avoid payment of unemployment allowance.

At the district level also none of the six sampled districts had bothered to prepare district annual plans or create a block-wise shelf of possible projects/works. In an annexure that shows whether there were delays in the preparation of the labour budget, the entry for Gujarat reads, “Records were not produced to audit.” Reading this, one wonders whether we live in post-RTI (right to information) times at all.

Notwithstanding rhetorical claims of sarvasparshi (all inclusive) and sarvangi (holistic) growth, the strategy of investment-friendly growth that Gujarat has adopted translates into pushing the poor to the wall with greater force. There is a lot of trumpeting of the “good governance” and “administration” of the Modi regime and any effort to hold a mirror up to the increasing disparities is countered by the neo-middle-class with a question: If this is so, what are the people in Gujarat voting for? However, it is conveniently forgotten that the BJP’s losses in the last Assembly elections were concentrated in constituencies that have historically been on the map of underdevelopment. If the Modi government had indeed been successful in bridging the regional imbalance, this would not have been the case.

The problems that plague Gujarat’s so-called “model” of development are not going to be solved by a quick “governance fix” and by mobilising the bureaucracy in one more zumbish and abhiyan (mission mode).

Himanshu Upadhyaya is an independent researcher working on public finance and accountability issues.

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