Nothing should surprise us anymore—not after learning from the Times of India that at least five states have been paying taxes on behalf of their wealthy elected representatives, for decades. But they are not the only ones who enjoy the benefit of State subsidies. A combination of dubious corporates, complicit bureaucrats and self-serving politicians as well as a bunch of privileged, upper middle-class Indians also enjoy the benefit of State subsidies.
Let’s look at one example—Haryana, which was saddled with the cost and obligation of running and maintenance of the Rs4,500-crore, perennially loss-making metro rail project constructed on the basis of report by the failed Infrastructure Leasing & Financial Services (IL&FS). It is well established now that costs were padded up on the basis of cooked up ridership numbers. The matter is now before the court.
When the Rapid MetroRail Gurgaon Limited (RMGL) and its twin entity, Rapid MetroRail Gurgaon South Limited (RMGSL), ran out of funds, the government partner, HUDA (Haryana Urban Development Authority, now Haryana Shehri Vikas Pradhikaran—HSVP) was ordered by the court to keep the metro running. Ironically, it is the IL&FS entities that served termination notices to HUDA for breach of contract. The litigation continues.
A key fact to remember at the moment is that the metro has a ridership of under 60,000 passengers per day (on both phases of the project) when the original project report had projected a ridership of 100,000 per day for the first phase alone and around 600,000 per day for the two phases. More about this later.
Now, let’s look at how SpiceJet comes in. On 4th September, Ashok Khemka, principal secretary in the Haryana government, wrote a note regarding subsidy to SpiceJet airlines for flying on the Hisar-Chandigarh route. He made a comparison with what the people of Haryana are paying for travelling in a non-air-conditioned (AC) bus on the same route. Mr Khemka, renowned for his integrity and ability, has been transferred over 45 times in his career for daring to shine the light on wrongdoing, but remains undeterred and unyielding.
Here is what he says in the note. On 3rd September, a seven-seater flight was started between Hisar and Chandigarh. The State is providing a subsidy of Rs3,500 per passenger on the route. This works out to about 70% of the flight fare. Further, the government has reduced VAT (value added tax) on aviation turbine fuel from 20% to just 1%, to make it profitable.
Mr Khemka’s note is matter of fact; but consider what this means. On most days, you can travel from Mumbai to Goa or Bengaluru paying less than this on any airline without a subsidy. SpiceJet’s seven-seater, which will be used by seven privileged individuals, is hugely subsidised.
What is the desperate need to connect the two cities by a flight that is so unviable that it needs a 70% subsidy? Is it a remote location? On the contrary, as Mr Khemka points out, “Hisar is already well connected through a network of state and national highways.”
He goes on to provide an interesting comparison with what an ordinary person travelling in a non-AC Haryana Roadways bus on the same route pays. In the one-way fare of Rs240, he says, the taxes and tolls add up to Rs65 (tax of Rs40 under the Haryana Motor Vehicles Act; Rs13 as toll charges; plus there is a VAT surcharge on diesel of Rs12). Each bus carries around 54 passengers; so when you multiply the tax, it adds up to Rs3,510 per bus.
As Mr Khemka says, we are robbing 54 ordinary persons to subsidise relatively well-off flyers. It is ‘Robin Hood in reverse’. He goes on to argue that Haryana will be far better served (including environmentally) by extending the existing railway network to run trains along the Hisar-Narwana-Kaithal-Kurukshetra-Ambala-Chandigarh route. This would also be an environmentally better option, he says, than the subsidised flights. The government could run a JanShatabdi express on that route, he suggests. Will the government accept his sensible advice?
Now let’s come to the RMGL project at Gurugram, which has been dumped on State entities. Yesterday (18th September), it was agreed in court that RMGL would continue to run the metro until 16th October, while trying to fix legal issues with HUDA/HSVP and another State entity.
What is sacrosanct about this date? For one thing, the state elections will be over by then and the current incumbents will take credit for a plane link to Hisar and a still running metro rail; it doesn’t matter that it is a white elephant with no future.
While the fate of the metro rail will be left to the next government to decide, one thing will remain constant. The project, touted as the ‘first fully privately financed metro system’, will have its high cost and losses fully borne by government entities and recovered from the public.
Meanwhile, the two big elephants in the room, that ought to have been at the centre of the dispute and the litigation, are nowhere in the picture.
The first is IL&FS, whose group entities presented fake ridership figures, prepared the detailed project report and inflated the cost of the project, which it built through SPVs (special purpose vehicles) after acquiring it from the politically connected realty company DLF.
Ironically, Vineet Nayyar, vice-chairman at the government-appointed IL&FS board, had approached the Haryana chief minister asking him to acquire the project at Rs2,500 crore. It is a classic example of private losses being dumped on the public. Meanwhile, the effort to disgorge funds from the corrupt cabal that ran IL&FS to the ground appears to have tapered off in tune with the economic slowdown.
The second beneficiary is DLF Ltd. It got a big boost in land value and office rentals by ramming through a project that Haryana’s ordinary people, starved of decent public transport, could not even use.
Once the land values and office rentals shot up, it quietly transferred the project to the rapacious IL&FS which smartly ensured that the concession agreement would eventually lead to HUDA holding the baby.
Sources in the government say that DLF also applied and got 37 acres of additional FAR (floor area ratio), which is equal to16 lakh sq ft, in its Cyber City project, which would translate to around Rs1,000 crore of private benefit. Shouldn’t this be disgorged? Here are a few other relevant details.
Experts say that a key reason for low ridership is that the metro is badly aligned and built to serve a population that does not need public transport. It can only be made viable by investing more funds to extend it to parts of Gurugram that really need public transport. Shouldn’t it be recovered from the beneficiaries?
At Rs4,500 crore for 12km, the cost of the metro works out to a massive Rs400 crore per km, even when the land it is built on belongs to Harayana government. This equals the cost of underground tunnelling, while an over the ground project ought not to cost over Rs150 crore per km, say experts.
In 2018, the CAG (Comptroller & Auditor General) had pulled up HUDA for a one-sided contract which gave ‘undue benefit’ to the concessionaire. HUDA had agreed to assume 80% of the liabilities in case of termination and is paying the price now. Who signed and cleared this one-sided agreement that is inflicting losses on the state?
The 2017-18 annual report of RMGL reveals that only 39% of the metro’s revenue came from ridership. The charges being traded in court, however, seem to hold the Haryana government responsible for a series of lapses and breaches, including refusal to release land rights, permit commercial development around the metro, exploit advertising opportunities, provide infrastructure for evacuation of traffic from the metro and build linkages to Delhi Metro and other multi-modal transport.
This raises a simple question: If the metro was unviable, despite fake and exaggerated ridership claims, why was it built at all? Will the officials who cleared the project ever be identified and held accountable?
We don't know if these questions will ever be asked or whether the state will simply lose the battle and inflict costs on the people. The SpiceJet subsidy is an indicator of how little anyone cares about the loss of public money.
Shocking to see how HUDA, NOIDA, NHAI and other government agencies have used quasi-government agency, IL&FS to rip off tens of thousands of crores from poor investors.
NCLT should immediately order these unscrupulous agencies to immediately pay up the funds they owe to IL&FS so that the hard earned retirement savings of millions of people can be repaid.
Extremely shocking to see how HUDA scammed the hard earned PF funds of millions of people by wilfully not honoring its contractual commitments on the Gurgaon Metro.
Kudos to Uday Kotak and team for ending this scam. The courts should ensure that they order HUDA to immediately pay up the contractual obligations so that hard earned money of millions of people is returned.
Just a fact: DLF has some apartments in Gurugram which are not available to every rich person. They are exclusive and offered only to select individuals. They are that exclusive. Arun Jaitly-may his soul RIP- was one. Apparently Robert Vadra is also among the lucky ones.
I think auditing laws need a re-look and ICAI have to start training proper auditors. It's a joke. More screws have to be tightened when it comes to public funds. CAG alone isn't enough; it's short-staffed with the wrong people and wasted talent.
Reg auditing, take a basic approach: shell companies. In scam/mega scams, hundreds of shell companies were operated by the scamsters. Even in IL & FS, hundreds of shell companies were used. Why is this allowed ? Do PSUs need hundreds of shell companies ? If not,then why private companies ? Let every company declare its number of shell companies and other details. Then let there be random forensic audit ( like IT raid) for each company. And company should change thier auditor every year( not to be appointed in the next five years.
The government splurging monies on unfeasible projects that become perennial tax burdens for the people is a cardinal sin. Its been far too long since successive elected representatives have furthered pet projects that are unviable and signed off on dubious decisions that have burnt scam sized holes in the taxpayers' pockets! The lack of accountability for such revenue draining chicanery is downright sickening. There needs to be a legal institutional recourse to disallow such daylight robberies of the people's exchequer...
This is sickening. It is a naked example of crony capitalism. It shows rampant corruption in infra prjoects. This short of things will ensure that states like Haryana and country like India do not progress. This is more pathetic if one compares how Delhi Metro was built. This shows why some 1,40,000 flats, hundreds of infra projects are stalled. How can there be growth , jobs etc ? Are we destined to become an African nation like Nigeria ?
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NCLT should immediately order these unscrupulous agencies to immediately pay up the funds they owe to IL&FS so that the hard earned retirement savings of millions of people can be repaid.
Kudos to Uday Kotak and team for ending this scam. The courts should ensure that they order HUDA to immediately pay up the contractual obligations so that hard earned money of millions of people is returned.
Mumbai - Ahmedabad bullet train.