Exposed! Indian corporates' sloppy spy network

This is one of the first occasions that we have gotten to see how the Indian oligarchy's information machine works, notes Mihir Sharma.

It may have been the worst-kept secret in Delhi: Reliance knows everything.

Over the decades, the company - and many of its peers - have somehow developed a reputation for omniscience. 

Importantly, we do not know the truth about this fear - but this fear was certainly pervasive.

If you were an editor, you worried your front page was known even before you had pictured it fully. If you were a bureaucrat, you worried the inside of your files were known even better than they were by you.

If you were a politician, you feared the loyalty of your people was not just to you. For many in Delhi, this was just a fact of life. 

The arrest of half a dozen or so people on charges of getting documents out of the oil ministry and into the hands of "independent energy consultants" who would presumably then try to sell that information on to various companies, including RIL, Reliance ADAG and Essar, is one of the first occasions that we have gotten to see how the Indian oligarchy's information machine works.

After the arrests, and a raid on its office in Connaught Place, Reliance said it would conduct an internal enquiry, and said that no information from the ministry was "of any commercial consequence" to the company. 

Rather disappointingly, the information machinery is tremendously slapdash and amateurish - a couple of low-level employees, forged ID cards, and a midnight arrival at the ministry in a Tata Indigo.

No clever miniaturised cameras, no honey traps, no double agents. Ah well, what else to expect of the Indian private sector - they will always go for the low-cost, low-quality solution.

Business Standard quoted one oil company official as saying that "it is an open secret that sensitive information could be leaked and bought for as little as Rs 10 a page". You can almost hear his outrage. 

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It's welcome that the oil ministry is moving to close off these leaks. Given the multiplicity of them, it will be a little like sticking your thumb in a dyke that's already half a kilometre underwater.

But still, the oil minister, Dharmendra Pradhan, can rightly take credit for making the effort, at least. (Typically for this government, however, he took a bit too much credit - what he didn't tell you was that the CCTVs and so on followed a proposal from the UPA's last oil minister, Veerappa Moily.) 

Reliance's denial, in which it insists that the information in this specific case was "of no commercial consequence", is valuable. 

It is valuable because it indicates the general problem, beyond this specific case - that there is, too often, information of commercial consequence available in our ministries.

Too much information in the oil ministry is of commercial consequence to too many wealthy people. And this is true, also, of other ministries - especially those dealing with natural resources. 

Companies in the petroleum sector are dependent on the government for far too much of their outsize profits. For years, refineries ran a comfortable business in which their imports were taxed at a much lower level than the finished product - and so the difference was pure, unadulterated, unearned, blessings-of-the-government profit.

For refineries, the effective rate of "protection" from outside competition was higher when their value added was lower - in other words, the less actual productive work they did, the greater the gift from the government.

Many refineries were also in special economic zones, or SEZs. (It is puzzling why the tax benefits of SEZs continue to apply long after they should be withdrawn, if the economic logic underlying SEZs is taken at face value.)

Even companies not indulging in any law-breaking, such as burgling ministries, would recognise that it's necessary to please the government of the day. 

The only way to end the outsize influence that our oligarchs have on our politics (and our media) is to ensure that government policy (and public acquiescence) are not the major inputs into their profit function.

Sadly, it isn't clear this government has figured this out. Certainly, the ongoing coal auctions indicate that the private sector thinks it is business as usual.

The apparently irrationally high bids for various mines - that have caused the economically illiterate to once again bow down before the graven idol of their deity, Vinod Rai - begin to make sense when you examine the role of the government.

A former coal secretary pointed out on television that many power companies couldn't even recover interest given the bids they'd made.

Some companies have been forced by the state into bidding high amounts to stay solvent; others have done so knowing that they have influence in the corridors of power. Both types clearly still expect that they will renegotiate contracts years down the line. 

It's perfectly rational, therefore, to bid irrationally. This is, after all, how the Indian state has always dealt with people who subvert auctions by making bids they never intended to meet: giving in to their demands.

If the "captive mine" system had just been ended, and well-regulated specialist private coal mining permitted, then everyone and everything - including the environment - would have been better off. But that would have required the government to relinquish control, and how often does that happen? Instead, there will be yet more decisions made in the corridors of Lutyens'Delhi of "commercial consequence". 

My worst fear is that this government will not just fail to reform coal, but it will extend this government control to sunrise industries such as high-tech manufacturing.

If 'Make in India' becomes about tweaking tariffs and demanding SEZs, the way the refinery business is, then we should prepare for more omniscient oligarchs, and for more shady break-ins.

Don't go down that path, finance minister. Everyone agrees that this Budget should rise above the mundane, deliver a vision, "something momentous", to quote The Economist's leader.

Promises won't be enough. Live up to the prime minister's words, and get the government out of the private sector's hair.

Perhaps then the boardroom will stop spying on the ministry.

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