India’s coalition government was rocked by a fresh corruption scandal on Thursday after it was accused of forgoing $210bn in potential revenues by selling coal assets too cheaply to some of the country’s top industrialists.

The accusations – contained in a leaked 110-page draft report by India’s comptroller and auditor general – prompted an uproar from the opposition Bharatiya Janata party, which attacked the government led by Manmohan Singh, prime minister, for mounting a “very serious scam”.

The government “is looting the country”, said Prakash Javadekar, a BJP spokesman. “We can’t allow this to happen.”

The scandal is the latest in a series that has undermined the Congress-led coalition government, brought parliament to a virtual standstill and deterred foreign investment. The new allegations are particularly damaging because they concern a time when Mr Singh’s office oversaw the mining ministry.

The prime minister’s office tried quickly to neutralise the report by disputing its findings. It also released a letter from the auditor-general expressing regret that the leak of the draft report to the Times of India had caused “great embarrassment” and “deep anguish”. In the letter, the auditor also said the report’s contents remained under discussion and had not yet been finalised.

But a senior Indian official familiar with the report confirmed its contents to the Financial Times and said it was very close to being in final form. The report is expected to be tabled in parliament during the current session.

India is the world’s third-largest coal producer behind the US and China. But it has also become the world’s third largest coal importer and many industry executives believe that New Delhi is set to become the top buyer before the end of the decade largely as a result of the domestic industry’s inefficiency.

The privatisation of the coal sector was intended to address many of the industry’s shortcomings. Among the beneficiaries, according to the draft report, were public utilities and as many as 100 private companies, including many fast-growing leaders in the power sector.

Sriprakash Jaiswal, coal minister, told reporters that the government did not seek to profit from the allocation of coalfields during the privatisation process as its priority was stimulating growth in the industry. It was also now working on establishing a process for competitive bidding for new coal blocks that would soon be in place.

According to the report, India’s government incurred the losses by selling 155 coal blocks outside an auction process between 2004 and 2009 during Mr Singh’s first term in office. The cheap price for which they were sold resulted in “undue benefits” worth $210bn, the report’s authors found.

An earlier report by the auditor-general estimated that the government lost $39bn in potential revenues in the sale of 2G mobile telecoms licences in 2008. That figure is disputed by the government but as a result of the audit a former telecoms minister, bureaucrats and telecoms executives are facing prosecution on corruption charges.

In a related judgment, the Supreme Court ruled this year that the sale of natural resources, such as spectrum, should be by competitive auction rather than a first-come-first-served basis. It scrapped the award of 122 telecoms licences from the 2008 auction.

Groups in the mining and power sector including Tata, Essar, Adani, Jindal and Vedanta all declined to comment on Thursday.

Steel group ArcelorMittal, which was among the beneficiaries of the privatisation process, said it was allocated two coal blocks by the government to fuel “captive power plants” and two proposed steel projects. In a statement it said it had been allocated the blocks “on merit” and “in accordance with the government’s policy”.

One senior regulator on Thursday described the telecoms scandal as a “trailer” to what was to come.

Mining industry experts say standards in the resources sector in India lag behind global practice by as much as three decades. The sector is said to be plagued by poor regulation, illegal mining and corruption.

“Extractive industries in India do not operate in a transparent manner,” said Anupama Jha, executive director of Transparency International. “Bribing and corruption are endemic as we continue to hear reports of collusion and favouritism in allocation [of licences].”

Additional reporting by Javier Blas and James Shotter in London and Varun Bhandari in New Delhi

Get alerts on Manmohan Singh when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article