How the UPA robbed us of Rs2,80,795 crore

The number in the headline is the amount of money looted by the UPA government from taxpayers and investors since 2004. And all this is from just one sector: petroleum.

The only difference between a Ramalinga Raju, who raided Satyam’s cash chest to bankroll his infrastructure dreams, and the government, which dipped into public sector assets to finance its re-election, is this: Raju cannot legislate away his crimes. Government can.

Let’s go back to the first number: Rs2,80,795 crore. I owe this piece of info to my colleague Mayank Aggarwal, who had put in an RTI query to the ministry of petroleum and natural gas asking them how much money was transferred from profit-making oil companies to loss-making ones to fund the subsidisation of kerosene, cooking gas and diesel (among other things).

The answer he got was frightening. Between 2004-05 and 2009-10, the three most profitable oil and gas companies (ONGC, GAIL and Oil India) were summarily asked to hand over Rs1,12,592 crore to three loss-making oil marketing companies.

That’s nearly three times the current year’s central outlay for NREGA, the flagship social security scheme of the UPA. But even Rs1,12,592 crore wasn’t enough to staunch the bleeding of Indian Oil, BPCL and HPCL. Over and above the robbery of three profit-making oil companies, the government had to raid the taxpayer’s chest for another Rs1,68,203 crore over 2005-10 (paid through oil bonds) to ensure the marketing companies stayed afloat.

Now, let’s restate the full extent of the skullduggery. To ensure that oil prices did not rock its electoral boat, it transferred Rs1,12,592 crore from publicly-listed profit-makers to the loss-makers, but there’s a procedural complication here.

Politicians & Corruption

Cartoon Source: http://lifesacomicstrip.blogspot.com/2009/09/politicians-and-money.html

The government itself owns majority stakes in these profit-makers, so the real extent of money transferred from private investors is equal only to the level of public shareholding in these companies.

Since the public shareholding is 25.86% in ONGC, 21.57% in Oil India and 42.18% in GAIL, private investors were cheated of Rs29,991 crore in the process. That’s their share of profits in ONGC, Oil India and GAIL that got transferred to the marketing companies. Investors in these three companies can approach Sebi and ask it to take action against the promoter (the government) for corporate misgovernance and misappropriation of shareholders funds.

To be sure, this is not a point that has not been made before. What we are now clear about is the exact extent of the government’s bad politico-economic decisions that investors and taxpayers finally ended up paying for.

Misgovernance and fraud is built into the public sector primarily because politicians use public assets for private ends, including financing their own re-election.

Let’s also remember, the Rs2,80,795 crore scandal is only the tip of the iceberg. If we add up the subsidies handed over to fertiliser companies, farmers and the Food Corporation of India (a substantial part of the grain mountain that is now being fed to rats), the losses will be truly stupendous.

The best thing the UPA did recently was thus to move towards oil price deregulation, but we are going to continue to pay for past follies. A case in point is the Direct Tax Code (DTC) that was recently cleared by the Union cabinet. Originally touted as a big deal for taxpayers, it has been reduced to a minor concession, thanks to past overspending.

The original idea behind the DTC was to move to a tax system that was transparent and easy to administer, but the UPA cannot afford it anymore. A mountain of work has, thus, yielded a mouse. After producing two draft codes for public discussion, finance minister Pranab Mukherjee has more or less opted for incrementalism rather than radical change.

The initial proposal was simple enough: give taxpayers a large dose of tax relief, lump all exemptions into one package, and make the tax system less complicated. If Mukherjee had stuck to that goal, taxpayers would have surrendered small reliefs here and there and gained big on tax slabs and choice of tax-free investment avenues. But now Mukherjee’s DTC is a pale shadow of its former self.

Under the original draft proposal, taxpayers in the higher brackets would have saved more, as the idea was that the lowest rate of 10% would cover incomes upto Rs10 lakh. The middle rate of 20% would apply to incomes in the Rs10-25 lakh bracket, and the top rate of 30% to incomes above Rs25 lakh. As things stand now, the tax-free bracket merely moves up from Rs1.6 lakh to Rs2 lakh.

The 10%, 20% and 30% brackets also shrink to Rs 2-5lakh, Rs5-10-lakh and Rs10 lakh plus.

This is incrementalism at its worst, and Pranab-da has missed a golden opportunity to empower taxpayers. Having robbed them in the past, he cannot play Robin Hood now.

The number in the headline is the amount of money looted by the UPA government from taxpayers and investors since 2004. And all this is from just one sector: petroleum.

The only difference between a Ramalinga Raju, who raided Satyam’s cash chest to bankroll his infrastructure dreams, and the government, which dipped into public sector assets to finance its re-election, is this: Raju cannot legislate away his crimes. Government can.

Let’s go back to the first number: Rs2,80,795 crore. I owe this piece of info to my colleague Mayank Aggarwal, who had put in an RTI query to the ministry of petroleum and natural gas asking them how much money was transferred from profit-making oil companies to loss-making ones to fund the subsidisation of kerosene, cooking gas and diesel (among other things).

The answer he got was frightening. Between 2004-05 and 2009-10, the three most profitable oil and gas companies (ONGC, GAIL and Oil India) were summarily asked to hand over Rs1,12,592 crore to three loss-making oil marketing companies.

That’s nearly three times the current year’s central outlay for NREGA, the flagship social security scheme of the UPA. But even Rs1,12,592 crore wasn’t enough to staunch the bleeding of Indian Oil, BPCL and HPCL. Over and above the robbery of three profit-making oil companies, the government had to raid the taxpayer’s chest for another Rs1,68,203 crore over 2005-10 (paid through oil bonds) to ensure the marketing companies stayed afloat.

Now, let’s restate the full extent of the skullduggery. To ensure that oil prices did not rock its electoral boat, it transferred Rs1,12,592 crore from publicly-listed profit-makers to the loss-makers, but there’s a procedural complication here.

The government itself owns majority stakes in these profit-makers, so the real extent of money transferred from private investors is equal only to the level of public shareholding in these companies.

Since the public shareholding is 25.86% in ONGC, 21.57% in Oil India and 42.18% in GAIL, private investors were cheated of Rs29,991 crore in the process. That’s their share of profits in ONGC, Oil India and GAIL that got transferred to the marketing companies. Investors in these three companies can approach Sebi and ask it to take action against the promoter (the government) for corporate misgovernance and misappropriation of shareholders funds.

To be sure, this is not a point that has not been made before. What we are now clear about is the exact extent of the government’s bad politico-economic decisions that investors and taxpayers finally ended up paying for.

Misgovernance and fraud is built into the public sector primarily because politicians use public assets for private ends, including financing their own re-election.

Let’s also remember, the Rs2,80,795 crore scandal is only the tip of the iceberg. If we add up the subsidies handed over to fertiliser companies, farmers and the Food Corporation of India (a substantial part of the grain mountain that is now being fed to rats), the losses will be truly stupendous.

The best thing the UPA did recently was thus to move towards oil price deregulation, but we are going to continue to pay for past follies. A case in point is the Direct Tax Code (DTC) that was recently cleared by the Union cabinet. Originally touted as a big deal for taxpayers, it has been reduced to a minor concession, thanks to past overspending.

The original idea behind the DTC was to move to a tax system that was transparent and easy to administer, but the UPA cannot afford it anymore. A mountain of work has, thus, yielded a mouse. After producing two draft codes for public discussion, finance minister Pranab Mukherjee has more or less opted for incrementalism rather than radical change.

The initial proposal was simple enough: give taxpayers a large dose of tax relief, lump all exemptions into one package, and make the tax system less complicated. If Mukherjee had stuck to that goal, taxpayers would have surrendered small reliefs here and there and gained big on tax slabs and choice of tax-free investment avenues. But now Mukherjee’s DTC is a pale shadow of its former self.

Under the original draft proposal, taxpayers in the higher brackets would have saved more, as the idea was that the lowest rate of 10% would cover incomes upto Rs10 lakh. The middle rate of 20% would apply to incomes in the Rs10-25 lakh bracket, and the top rate of 30% to incomes above Rs25 lakh. As things stand now, the tax-free bracket merely moves up from Rs1.6 lakh to Rs2 lakh.

The 10%, 20% and 30% brackets also shrink to Rs 2-5lakh, Rs5-10-lakh and Rs10 lakh plus. This is incrementalism at its worst, and Pranab-da has missed a golden opportunity to empower taxpayers. Having robbed them in the past, he cannot play Robin Hood now.

Source: http://thecandideye.wordpress.com/2010/09/06/how-the-upa-robbed-us-of-rs280795-crore/