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Coal block e-auctions: With Rs 2 lakh crore in purse, has Modi govt really made any profit?

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By Harshmeet Singh

All the hue and cry made by the Manmohan Singh government over CAG’s report of 1.86 lakh crore loss to the exchequer during the Coal block allocations from 2004 to 2011 has been rejected. With the proceeds from the current coal blocks auction comfortably crossing 2 lakh crore (includes proceeds from e-auction, royalty and the upfront payment), the Government is set to get a huge shot in the arm.

What went wrong in the first allocation?

Regarded as one of the biggest scandals in the Indian history, the coal blocks’ allocation between 2004 and 2011 were marred with controversy. According to the CAG, rather than opting for a competitive bidding, the Government chose to allot coal mines to Private players and PSUs at a nominal prize, giving them a ‘windfall’ gain in the process. Several blocks were allocated on ‘special’ recommendations of the ministers involved.

Interestingly, the initial report of the CAG never accused the Government of any corruption charges. It was only after the CVC (Central Vigilance Commission) asked the CBI to conduct an enquiry did the charges of corruption and wrong-doings surfaced. The loss figure of 1.86 lakh was arrived at by excluding the share of PSUs. According to Vinod Rai, the erstwhile CAG, had PSUs been taken into consideration, the loss would have amounted to over 10 lakh crore!

From incorrect information being given by the companies to new names being added to the list of conspirators with each passing day, the Coalgate took the entire country by storm. The curious case of missing files added to the already spectacular drama.

CBI director Ranjit Sinha’s testimony in the SC that the final status report was shared with the Law Minister, Ashwani Kumar, ‘as desired by him’, before being presented in the Supreme Court drew the ire of the judges. Sinha further claimed that the original content of the report was modified by the minister. This forced Harin Raval, the additional Solicitor-General to resign from his post, for misleading the Supreme Court.

Final Supreme Court Verdict

Soon after the Modi Government assumed charge last year, the Supreme Court came out with the final judgement in the coal block allocation case. The apex court cancelled the allocation of 214 coal blocks out of the total 218 blocks allocated since 1993. This presented a dual opportunity for the Modi regime.

Firstly, it gave a chance to the new Government to establish a clean image for itself by ensuring a transparent allocation of coal blocks. Secondly, it presented an opportunity to fill in the exchequer for the public welfare schemes that the Government wishes to implement in the future.

Current e-auction of coal blocks

Of the 214 blocks whose allocation was void by the Supreme Court, only 31 (18 operational and 13 soon to be operational) have been put under the hammer till now. With the current bids already exceeding the CAG’s figures, the total revenue from 214 blocks should easily end up close to 15 lakh crore. Just to be clear, the total bid amount of 2.07 lakh crore for the 31 blocks would be received by the Government over a period of 30 years, thus eroding the present value of this amount.

Apart from the transparency it brought forth, the e-auction method brings a number of other points to the table as well. With bids soaring high, the companies would be forced to increase their mining efficiency to ensure that they extract huge amounts of coal. This would put an end to hoarding with companies extracting maximum coal in order to cover their costs.

Reduction of power tariffs?

Piyush Goyal, the Coal and Power minister decided to segregate the coal blocks into two categories, viz. for power production and for non power production. With zero ceiling price for the ‘power production use’ blocks, the government adopted the reverse auction method (the company with the lowest bid wins the block) to allocate these blocks. Additionally, for every Rs 100 dip in the bid for the power production blocks, the power tariff was to be lowered by six paisa per unit.

This reverse auction process resulted in the reduction of power tariff worth Rs 96,971 crore, which would bring in much cheer for the end consumer. However, allocation of blocks at different rates by earmarking their separate purposes can be an ideal ground for corruption. The companies would always be tempted to extract coal at a lower cost from the mines tagged for power production, and sell it at a much higher cost in the market to earn profits.

Benefits of a healthier exchequer

The Government’s ambitious programs such as the 100 smart city project, Make in India, revamping of MNREGA and e-Governance initiatives could take a heavy toll on the national exchequer. The success of coal block and telecom spectrum auctions augurs well for the financial part of these schemes. However, it is their efficient implementation on the ground that would decide the future of our country.

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  • Proceeds of the auction will be given to the states. Not for the central government.

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PNB Fraud Fully Exposes the Malicious Intent Of Nirav Modi

For the past seven years, Nirav Modi’s three firms-Diamond R Us, Solar Exports and Stellar Diamonds-were in the process of procuring the LoU's from the Punjab National Bank (PNB)

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Nirav Modi's stamped his name in India’s top corporates with growing global prestige with his fame and affluence.
Nirav Modi's stamped his name in India’s top corporates with growing global prestige with his fame and affluence. Facebook
  • Nirav Modi is India’s one of the better- known diamantaires
  • Since 2013, Nirav Modi has been a regular on the lists of rich and famous Indians
  • Nirav Modi and his firms exploited the loopholes in the banking system to the fullest by seeking letters of undertaking

Who Is Nirav Modi

Nirav Modi is India’s one of the better- known diamantaires. Hewas born in a diamond-dealing family and spent his childhood in Antwerp, Belgium. At an early age of 19, he set sail for Mumbai. After spending nine years down the lane, he came up with his own company named Firestar Diamond Ltd. Initially, Nirav Modi started with selling loose stones and employed the only handful of people. But after attaining staggering success in his business till last year, the number of employees was more than two thousand.

As per the Firestar Group figures, the company’s revenue jumped over three years from 103 billion rupees to some 147 billion rupees by the 2016-17 fiscal year. Since 2013, Nirav Modi has been a regular on the lists of rich and famous Indians. According to Forbes magazine rankings, Nirav Modi’s net worth ranges to some $1.8 billion which itself explains the lavish lifestyle of the business tycoon.

Also Read: Biggest Bank Frauds Which Shook The Indian Economy

Nirav Modi’s stamped his name in India’s top corporates with growing global prestige with his fame and affluence. The Bollywood star and former Miss World, Priyanka Chopra also adorned with Modi’s jewels. From Hollywood’s red carpets to the Bollywood awards, his diamonds have sparkled on the bodies of actors and models like Kate Winslet, Dakota Johnson and Priyanka Chopra.

Last month, Nirav Modi was spotted at the World Economic Forum in Davos. A group photograph with Prime Minister Narendra Modi in the foreground and Nirav Modi in between rows of Indian business leaders have come under fire from the Congress party and notably carried out by the Indian media. Some political parties have taken a direct shot at Prime Minister for facilitating the run of Nirav Modi. In one of its tweet, Rahul Gandhi blamed Narendra Modi for this blunder.

Nirav Modi and his firms exploited the loopholes in the banking system to the fullest by seeking letters of undertaking (LOU) and thus raised credit from foreign banks to pay to its merchants. In simple words, LOU is a bank guarantee issued for overseas import payments. The scandal is termed as India’s biggest banking scams in ages.

For the past seven years, Nirav Modi’s three firms-Diamond R Us, Solar Exports and Stellar Diamonds-were in the process of procuring the LOU’s from the Punjab National Bank (PNB). Through these bank guarantees, Nirav Modi was able to raise the short-term loans from foreign branches of Indian banks to pay to its suppliers of raw material for his business.

A criminal complaint with the CBI was filed on January 29 accusing Nirav Modi and others of defrauding the bank and causing it a loss of Rs. 280 crore.
A criminal complaint with the CBI was filed on January 29 accusing Nirav Modi and others of defrauding the bank and causing it a loss of Rs. 280 crore. Wikimedia Commons

Due to the recent setback to the Punjab National Bank, its shares closed 2% lower at Rs. 125.65 against the previous day’s closing on BSE.

The CBI (Central Bureau of Investigation) booked the billionaire jewellery designer on January 31, along with his wife Ami, brother Nishal and business partner Mehul Choksi. The Nirav Modi’s wife is a U.S. citizen and said to be equally involved in the billion dollar fraud. The charges levelled against them were of allegedly cheating state-run Punjab National Bank to the tune of Rs. 280 crore. Within a fortnight of the first complaint by the Punjab National Bank, CBI was taken into the loop.

Also Read: 16 Indian origin people indicted for running a scam in the United States

Nirav Modi and his brother Nishal, who is a Belgian citizen, left India on January 1. However, it is still not known if they travelled together or separately. Meanwhile, Nirav Modi’s wife Ami, who is a US citizen, left India on January 6. Following the footsteps of his business associates, Mehul Choksi, the promoter of Gitanjali jewellery chain, left on January 4, the officials said.

After the exposure of the scam, CBI and the Enforcement Directorate moved to the External Affairs Ministry in order to get revoked the passports of Nirav Modi and his associates. Hence, the passports of Nirav Modi and Mehul Choksi got suspended for four weeks.

The last nail is struck by CBI as it has asked Interpol for help to arrest celebrity jeweller Nirav Modi, who is being investigated for one of the biggest bank frauds of the country.

Due to the recent setback to the Punjab National Bank, its shares closed 2% lower at Rs. 125.65 against the previous day's closing on BSE.
Due to the recent setback to the Punjab National Bank, its shares closed 2% lower at Rs. 125.65 against the previous day’s closing on BSE. Wikimedia Commons

The federal investigative agency and the law enforcement officials raided his jewellery stores and other businesses in Mumbai and New Delhi. However, Nirav Modi’s flagship company, Firestar Diamond, has denied any involvement in the case.

Also Read: 5 scams that rocked India in 2015

After this scam, Nirav Modi’s biggest rivals like Tanishq and Gitanjali Gems must be having a heave of sigh in terms of competition. As per the NDTV’s report, Nirav Modi is holed up at New York’s JW Marriott Essex House at 160 Central Park South, which includes both a hotel and apartments. The place is situated in a premier location overlooking New York’s well known Central Park.

In the following paragraph, thePNB’s swoop of Rs. 11,300 Crore is explained as it is:

  • There is a system of bank guarantee called a letter of undertaking (LOU). Under this a bank allows its customer to raise money from another Indian bank’s foreign branch in the form of a short-term credit. So basically, the LOU serves the purpose of a bank guarantee.
  • In order to avail LOU, the customer or organization is expected to pay margin money to the LOU issuing bank and hence the credit limit is granted. But in the Nirav Modi’s fraud case, he didn’t pay up any margin money and on the top of that, no credit limit was set up for him.
  • On a regular basis, Nirav Modi managed to pay to its suppliers of rough stones for his three firms. The money was paid through the loans by banks including Axis Bank, and Allahabad Bank. It was done by Nirav Modi’s firms on showing the letters of undertakings issued by the Punjab National Bank.
  • Early this year, Punjab National Bank discovered that there was no official record of such letters of the undertaking before reporting the matter to the CBI.
  • In this case, Nirav Modi and his firms were supposed to repay the loans but till now, all these loans have allegedly been rolled over for want of funds. Incidentally, when the borrower fails to make the repayment, the bank which has issued the LOU is constrained to honour the commitments on the behalf of its customers.
  • On February 15, the RBI (Reserve Bank of India), the central finance body of India reportedly directed the Punjab National Bank to pay all these banks that gave loans to Modi’s firm on the basis of guarantees issued by the state lender.
  • So virtually, Indian bank’s foreign branches were making payments on behalf of Nirav Modi’s to its suppliers in the form of loans.
  • The hell broke out in January when Modi’s firm requested further LOUs for paying the overseas suppliers. The bank officials straightforwardly refused to entertain the request on the ground that Modi’s firm needs to keep 100% collateral for the same. On this, Modi’s firm argued that no such money was kept ‘on margin’ in the past either and this led to an investigation by the bank officials who scanned the records only to discover that there was no trace of any such transaction. Lately, it was known that the guarantees/ undertakings were issued by bypassing the rules in collusion with some Punjab National Bank
  • The violation of the Punjab National Bank’s end was a too glaring blunder to ignore. Hence, a criminal complaint with the CBI was filed on January 29 accusing Nirav Modi and others of defrauding the bank and causing it a loss of Rs. 280 crore.The complaint included Nirav Modi and Mehul Choksi, managing director of Gitanjali Gems. But later on, Nirav Modi’s brother and his wife were also found to be included in this startling scam.