How Modi has placed his old friends Adani and Torrent on the high table
An integral part of the PM's business entourage, the two Gujarat industrialists have come a long way since 2003, when they defended Modi against the CII.
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On the sidelines of US President Barack Obama's visit, the Indo-US CEO forum will also be meeting in New Delhi. The Indian delegation to the forum has been expanded to 17 members, a decision which was reportedly cleared by none less than Prime Minister Narendra Modi. Three of the additions are particularly interesting: Adani Group chairman Gautam Adani, Torrent Group chairman Sudhir Mehta and SBI chairperson Arundhati Bhattacharya.
These three were present in Modi's delegation to Australia as well, during which the SBI gave a one billion dollar loan to Adani mining for its Carmichael mining project in Queensland, Australia.
Even when Chinese premier Xi Jingping came to India, two of the industrialists he met and interacted with were Adani and Mehta.
No doubt, Adani and Mehta are extremely successful businessmen. The fact that Greenpeace and the entire environmental lobby in Australia are up in arms against Adani's mining project in Queensland, shows that he has well and truly arrived even in the international stage.
These battles are very different from a battle that Adani and Mehta fought nearly over 12 years ago. In 2003, Modi, the chief minister of Gujarat, was taken to task by the Confederation of Indian Industry for the anti-Muslim riots in the state. Leading the charge were prominent industrialists like Rahul Bajaj and Jamshyd Godrej. The CII's attack on Modi provoked an angry reaction by a group of Gujarati industrialists, who organised themselves under the Resurgent Gujarat Group. Adani and Mehta were the leading lights of the RGG, which took on the CII on Modi's behalf. The CII was forced to apologise to the chief minister.
By forcing CII, dominated by the more established business houses, to apologise, Adani and Mehta had broken a glass ceiling. But they have entered a new league after Modi's ascent as the country's prime minister. The achhe din for Adani and Mehta isn't restricted to their presence in key business delegations. Here's how.
Torrent Pharma was among the many pharmaceutical companies that was suffering under the UPA government's tough drug pricing policies that aimed at keeping the cost of medicines cheaper. But the Drug Price Control Order, 2013 exempted products approved as "new drugs" from price control. The exemption didn't get implemented during the UPA's tenure. It's implementation began under the Modi government and the first company to benefit from it was Torrent Pharma.
In August last year, the government's National Pharmaceutical Pricing Authority (NPPA) granted Torrent Pharmaceuticals a five-year exemption from price control for one of its newly developed products: A fixed dose combination prasugrel hydrochloride 10mg plus aspirin 75mg.
This gave Torrent Pharma the freedom to price the medicine for five years, after which it will have to seek NPPA approval. Interestingly three months earlier, the NPPA had rejected a similar application from GlaxoSmithKline (GSK) Consumer Healthcare, seeking exemption from price control for Crocin Advance which, according to GSK, was a new drug, with optizorb technology that releases its medicine up to five times faster than ordinary paracetamol tablets. A panel of experts constituted by NPPA had rejected GSK's argument. The same expert committee, however, recommended the exemption for Torrent’s drug.
I have written about the controversial nature of SBI's one billion dollar loan to Adani here. So let us instead briefly look at some of the alleged "favours" Adani got during Modi's tenure as Gujarat chief minister.
The Comptroller and Auditor General report tabled in the Gujarat Assembly last year, slammed the state government for irregularities amounting to more than Rs 25,000 crore. This includes what the CAG says was "around Rs 1,500 crore in undue benefits to certain companies, including Reliance Petroleum, Essar Power and the Adani Group". According to the CAG, the Gujarat government's non-monitoring of the construction quay in phase one of Adani Group-owned Mundra port led to short recovery of Rs 118.12 crore.
The CAG report tabled in the 2012 Budget Session in Gujarat criticised the government for "extending benefits" to the then chief minister Modi's "favoured few" Adani Energy and Essar Steel companies, which coupled with its poor management and faulty agreements on exploration of oil and gas in the Krishna-Godavari Basin, alone cost the exchequer over Rs. 5,000 crore. The CAG report said the GSPC purchased natural gas from the spot market at the prevailing prices and sold it to Adani Energy at a fixed price much lower than the market price, benefiting the private company to the tune of over Rs 70 crore.
According to this report in Business Standard, Adani Group got land from the Modi-led Gujarat government for its Mundra port and SEZ at Re 1 and Rs 32 per square metre. This is much lower than other companies that set up units in the state. It has been alleged that this is a minuscule fraction of the market rate.
Case of the Naini Block
In 2006, the government of India had allocated the Naini coal block in Angul (Odisha) to the Gujarat Mineral Development Corporation (GMDC), a PSU of the Gujarat government. In 2009, the Gujarat government allotted the GMDC's block to Adani and Torrent groups. This decision was also reportedly taken at the highest levels of the Gujarat government ie Modi. GMDC had earlier signed an agreement for the block with Hyderabad-based KSK Energy, which was cancelled by the state government.
Through this decision, the Modi government had overturned the decision of the GMDC, which had earlier refused to provide fuel to the Adani group as the group planned to sell power at a higher rate than KSK had agreed to. So the decision of a PSU or the need for cheaper electricity was of little concern to the government.
This is why the presence of Bhattacharya, the head of India's largest public sector bank, in Modi's business delegations, is interesting. If the GMDC was overruled on the coal block to Adani when Modi was chief minister, SBI gave Adani mining a one billion dollar loan for its Carmichael mine during PM Modi's visit to Australia. SBI stepped in when many international banks were unwilling to touch the project with a barge-pole given its reported environmental unviability.
This shows that we are moving towards a system in which the interests of the state are closely aligned with those of a few industrial houses. So when Adani bags a huge mine in Australia, it is presented as the expansion of India's economic might, hence justifying the SBI loan. But beneath the gloss, there is another word for this system: crony capitalism.