This week is a good time to discuss who deserves goodies from the government. Here are three candidates. The first is Members of Parliament (MPs), who have been given a 150% hike in their budgets under the MP local area development (MPLAD) scheme. Each MP can now spend Rs.5 crore every year, up from Rs.2 crore till now, and Rs.1 crore when MPLAD was introduced 17 years ago. Inflation neutralisation would have taken that figure to about Rs.3 crore, so the extra Rs.2 crore per MP per year (Rs.1,600 crore annually for about 800 MPs) is a bonus. If you want to know how this money is used, read the report of the Comptroller and Auditor General. Among other things, it points out that MPs can and do select those who get contracts under the scheme. Interestingly, Nitish Kumar has scrapped the Bihar variant of the scheme for Members of Legislative Assembly (MLAs); he has also announced a doubling of the pay and perquisites for MLAs. If the two announcements are connected, you can draw your own conclusions about whether kickbacks flourish in the name of local area development.
The second candidate for government largesse is the International Cricket Council (ICC), presided over by Sharad Pawar. The government has just given the ICC’s World Cup tax-free status. The reports say this means a tax saving for ICC of Rs.45 crore, though the figures of revenue (Rs.1,476 crore) and expenditure (Rs.571 crore) suggest a much larger giveaway. It is easy to see why the government has played ball; Mr. Pawar is the leader of a coalition partner, and agriculture minister. Oddly, the sports minister argued against the freebie. So did a note put up by the finance ministry, though the finance minister seems to have batted for the ICC. As happens all too often, the Prime Minister has chosen the path of least resistance.
Now the history of the ICC is that, once cricket became a big-money game some years ago, this London- based body decided that it needed tax shelters. It created a subsidiary for its business operations and housed it in Monaco. But running between London and Monaco was inconvenient, so the ICC told the British treasury that it would re-locate entirely to London if the government offered tax-free status. When the response was a polite ‘No’, the ICC moved to Dubai. Penny-pinching London could learn a thing or two from the generosity that New Delhi shows to the really deserving.
But the most deserving of all is Vijay Mallya, owner of yachts, private jets, vintage cars, a cricket team, an island in the Mediterranean, and homes on every continent, and also two-thirds owner of Kingfisher Airlines. Kingfisher has been so run that it has been losing money, and borrowing up to its gills. The lenders (13 banks led by the government-owned State Bank of India) have now agreed to convert some of the loans into equity — at a share price of Rs.64.48, when the going market rate was Rs.40. That means a loss straightaway of nearly 40% of the loan value — and there are further loans outstanding. Could the lenders have flexed their muscles, since the airline is in no shape to repay loans? Yes. Could they have threatened to buy out the promoters’ 66% shareholding at the going value of Rs.740 crore, and put in new management? Almost certainly, yes. So if Mr. Mallya still has majority control of the airline, it tells you the scale of the government banks’ largesse.
(Source: Weekend Ruminations by T. N. Ninan in Business Standard, dated 2-4-2011)
