Two years ago, the United States Department of Defense “discovered” mineral deposits in Afghanistan—gold, iron, copper, cobalt—that it claimed were worth almost $1 trillion. Actually, the deposits were worth almost nothing, they had previously been worth almost nothing, and they are still worth almost nothing. They will have value only when someone wants them.
The newest scandal in India involves sweetheart concessions involving the country’s nationalized coal industry—assets sold due to personal relationships or perhaps even outright graft. This is an important issue, well worth discussing. But the $210 billion tag that was attached to the scandal by the government itself is off by probably $200 billion. Worse, it is deflecting attention from problems costing India far more than $200 billion.
Consider three related questions. First, where is this money? Which companies have it? What individuals? Does anyone actually think there is $1 trillion about to be invested in Afghanistan minerals or $210 billion waiting desperately to enter the Indian coal industry? The $210 billion is fiction. It’s what someone with no understanding of how markets work thinks the assets should be worth.
Second, why isn’t the money there? Why would local conglomerates and global energy giants laugh, privately, at the idea of truly spending $200 billion on Indian coal? The answer does actually represent huge sums lost—in coal and many other sectors.
The answer is tied to graft and sweetheart deals, but it is more strongly tied to government monopolization and lack of secure rights to land. In other words, reform. An Indian coal sector where companies can freely compete and the right to economic assets are quickly and clearly bought and sold may be worth $210 billion. This Indian coal sector doesn’t exist, which is why the $210 billion doesn’t (yet) exist.
The third question is: Who’s the money for? As in the 2G telecom scandal, the conventional wisdom is completely wrong. The disaster isn’t that the government lost revenue; the disaster is that the country lost prosperity. An open, competitive, secure Indian coal sector would transform the power industry and thus the whole economy. Less environmental damage but more power generation. Fewer blackouts, faster economic growth. That’s truly what’s being lost here.
