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Shades of grey.
ALL IN THE FAMILY

Almost every business in Punjab leads back to an Akali Dal leader

By M Rajshekhar

“Industry is fleeing Punjab”—an investigation by us found a growing number of companies have shut down or are planning to set up newer units outside the state. Among the reasons cited by businessmen for the exodus were the bribes they claim they are compelled to pay to ruling Akali Dal politicians.

But rent-seeking is not the only way Akali Dal leaders are strangling industry in the state.

Over the past decade, Punjab has seen a handful of players come to dominate the state’s industrial sector, earlier fragmented into hundreds of small companies. This consolidation has happened in a bewilderingly diverse set of industries, including stone crushing, sand mining, cable distribution, liquor distribution and bus transport. Most of these new, big players are alleged to have links to the Akali Dal.

Part 1: Liquor

Till 2002, liquor distribution in Punjab was in the hands of myriad entities. The industry had the distilleries on top, a bunch of wholesalers in the middle, and hundreds of small businessmen running liquor shops—or thekas—at the base.

Revenue department officials at the district level used to auction wholesale and theka licences, said a businessman who used to own liquor stores in Amritsar. In every circle, the administrative subset of the revenue department, there could be as many as 12 thekas.

“The government would define the revenues it wanted from each circle—say Rs7 crore,” the businessman explained. “Since most of the companies in this business were small, they could not bid for the whole circle. And so we would form consortiums and bid.”

The format for choosing wholesalers was different. According to a former wholesaler, who too spoke on condition of anonymity, anyone could apply for a wholesale licence. Till the early 2000s, each district had several wholesalers—as many as 20 in some.

This architecture created a highly competitive market. “Across the state, licences would go to more than 1,000 companies,” said Sarabjit Singh Verka, an investigator with the non-profit Punjab Human Rights Organisation. “No monopoly could form. Competition was stiff. The price of liquor was low. And the government earned good revenues.”

This structure first weakened under the Congress regime. In 2002, shortly after his appointment as chief minister, Amarinder Singh gave a state-wide wholesale licence to liquor baron Ponty Chadha—effectively, his company had a monopoly over the sale of liquor in Punjab.

According to Verka, the next four years saw men hired by Chadha wage a war against homebrews, and against people who brought in liquor from neighbouring states (or the Union Territory of Chandigarh) instead of buying it in Punjab. They would, says Verka, “raid marriage halls and parties to check whether the alcohol had been bought in Punjab”.

In 2006, with state elections around the corner, says Verka, the government ended Chadha’s contract. The liquor business reverted to the circle model with multiple wholesalers in every district.

In 2007, the Akalis came to power and, a year later, began to consolidate the liquor business again. This time, says the former wholesaler, the government brought down the number of wholesale licences to just two for every district. As the number of wholesalers fell, the remaining wholesalers’ ability to put pressure on distilleries and retailers increased. “Distilleries were told to offer higher trade discounts and longer payment periods,” he said. “Stores were put under pressure by slashing trade discounts and insisting on immediate payments.”

Of the two wholesalers, one was usually an old player, the other a new entrant allegedly known to the Akalis. This split averted complaints of monopolisation. But, according to the former wholesaler, the new entrant called the shots: he would sell most of the stipulated quota and the holder of the renewed licence could sell the rest.

Most of these new wholesalers, we were told repeatedly, are connected to the Akali Dal. Said K R Lakhanpal, a former chief secretary and finance secretary of Punjab, “In Punjab, it is very well known that the liquor business is dominated by functionaries of the ruling dispensation.”

In their conversations with us, the wholesaler, the retailer and Verka said that five individuals and their families control over 80% of the liquor trade in the state. Of them, at least three have direct links to the Akali Dal.

Bikram Majithia’s family owns Saraya Industries, which has operations in liquor and energy. He is the brother of union minister Harsimrat Kaur and brother-in-law of Sukhbir Badal, the deputy chief minister and son of chief minister Parkash Badal. Majithia is also the minister for three departments, including non-conventional energy.

Deep Malhotra heads the liquor-making Oasis Group and is the Akali Dal MLA from Faridkot. Shiv Lal Doda set up Gagan Wines and was the halka in-charge (local leader) of the Akali Dal in Abohar.

Questions sent to the state government about these allegations remained unanswered.

Part 2: Stone crushing

If the liquor business saw smaller companies elbowed out by a few large ones, stone quarrying played out to a different pattern. Here, the industry structure stayed the same, but an outsider came in and took away the margins.

Punjab’s quarrying industry is concentrated in a few districts. Rivers such as the Ravi are a major source of stone. When it rains, says the owner of a crushing plant near Pathankot, “The Ravi swells as wide as 3 km. When it recedes, it leaves behind boulders on the fields of farmers.” This annual phenomenon created a crushing industry in two districts near the Himalayas—Pathankot and Gurdaspur. Apart from this, crushers also operate in districts that have rocky outcrops and hills, such as Ropar.

Crushing too is a fragmented industry, thanks to the low entry costs. A crushing unit, the businessman points out, costs no more than Rs1.5 crore.

Till 2007, plots for riverine crushing were awarded through auctions. Successful contractors collected the stones deposited by the river, crushed them and heaped them up in large piles. The construction industry from Amritsar and elsewhere bought its requirements from these mounds. The market price of a tractor trolley-load of crushed stone was Rs700-800.

Around 2010, once the central government began insisting on environmental clearances for stone mining, things began to change. According to a 2012 petition filed by lawyer Gurbir Singh Pannu in the Punjab & Haryana high court, Punjab held very few auctions thereafter. His petition says, “In Roop Nagar district itself… the total quantity permitted to be taken out for three years was 159,000 tonnes. This was almost a joke as there are about 400 crushers in the Roper district itself and this much quantity of stones will last barely three days.”

Similarly, in Pathankot, says his petition, the quantity permitted by regular auction would generate only six days’ work for 400 crushers.

In the guise of environmental regulation, did the government push a legal, revenue-generating industry underground? Says Pannu’s petition, “If the crushers have to work, they will have to work on the basis of illegal mining, not acknowledged by the state nor any revenue paid to the state.”

Human rights investigator Verka says that if legally mined stone is so little, “where is the rest of the stone being used for making roads and buildings across Punjab coming from?”

People in the villages near Pathankot say stone crushing never really stopped after the central government order. Travelling through the area, it’s clear that crushers are working relentlessly, and stone-laden trucks plying hectically. Villagers living near Pathankot say that more than a thousand trucks travel along these roads every night.

This was verified separately on a visit to a crushing unit at Kathlour near Pathankot. There, workers were matter of fact about the source of the raw material. “From the river,” a worker said.

“Mining continues,” said the quarry owner. “It is just that now the stones are shown as coming from Jammu & Kashmir.” He claimed that crushers can now mine and transport their stones only on the payment of Rs500 per tonne to a local called Kuldip Singh Makkar.

“On paying this money,” said the owner, “we are given J&K ki parchi”—a document which attests that the stones being transported are from Kashmir and, therefore, legitimate.

Kuldeep Singh Makkar, the local who allegedly collects the levies, is the brother of Akali Dal MLA Sarabjit Singh Makkar.

When contacted, Makkar denied any wrongdoing. Everyone has a permit, he said. “There is so much policing. How can anyone do illegal mining?”

On being asked why he was being named by people in the local industry, he said: “I run a legal crusher and I complain about those doing illegal work. I get the illegal operators arrested. And that is why people doing illegal work are trying to defame me.” As for the PIL, he says, these are false writs.

His brother, he added, has no role in this business.

However, Kuldip Makkar’s claims about the lack of illegal mining are challenged by local reporters and businessmen.

“For every Rs200 the crusher makes, the goonda tax is Rs500,” said the quarry owner. “This means that we, who made all the investments, earn Rs600 while they make Rs1,500.”

Questions to the state government did not evoke a response.

Part 3: Buses and cable distribution

Transport too was a fragmented industry in Punjab, with several companies plying buses. Here, as an award-winning investigation in The Tribune showed, a monopoly has taken root since 2007. “[Sukhbir] Badal-associated transport companies not only hold a virtual monopoly in the luxury bus segment, but are clearly the dominant players in the private sector,” the paper reported. “Out of the 84 luxury bus permits operating in Punjab, at least 52 are with transport companies patronised by the Badals.”

This happened in two ways. In some cases, people close to the Badals acquired stakes in private transport firms such as the Indo-Canadian Transport Company, which plies Mercedes-Benz buses between, for instance, Delhi airport and Punjab’s major cities. At other times, The Tribune reported, “Companies associated with the Badals have been on a permit-buying spree from other private transporters. This is especially so after the December 2012 order of the division bench of the Punjab & Haryana high court, which put a blanket ban on issuance of new permits.”

Then, there is cable distributorship. As in the rest of India, the cable business began in Punjab around the first Gulf War, with a bunch of entrepreneurs rigging up dish antennae in streets and neighbourhoods. These were small businesses, feeding as few as 500-600 households and subsisting on monthly subscription fees and local advertising.

Over time, according to a cable operator in a town near Ludhiana, the companies consolidated. This process picked pace after, as this 2012 article in Firstpost pointed out, the Akali Dal came to power. “Soon after the Akali Dal government took over, there were rapid changes in the cable network distribution front. DTH had not yet arrived, and there were three networks then—Hathway (belonging to Mumbai’s Rahejas), Zee’s Wires & Wireless India Ltd, and Digicable. Today, none of them exists. A new cable distribution network—Fastway Transmission Private Ltd—has usurped all three networks.”

The fallout of this is that cable operators are getting squeezed. Fastway Transmission sends satellite signals to local cable distributors who then send them on to their customers.“I have to pay Fastway about Rs125 per connection but I am not allowed to charge more than Rs275,” complained the operator. “It is hard to survive.”

As it happens, Fastway too has a Badal connection. Between 2010 and 2015, Jagjit Singh Kohli and Yogesh Shah were directors on Fastway’s board. Their names, incidentally, also show up in the statutory filings of Sukhbir Singh Badal’s two media companies—Gur-Baz Media and G-Next Media. G-Next owns the PTC Group of television channels.

In 2014, Gur-Baz owned 99.98% shares in G-Next. Orbit Resorts owned 99.98% shares in Gur-Baz. Sukhbir Badal owned 67.32% of Orbit Resorts.

For a politician or a party, each of these industries would have a different attraction. Stone crushing, sand mining and liquor distribution throw up a lot of cash. The control of the media allows propaganda. And buses, says Master Mohan Lal, a former transport minister with the Akali government, become profitable as the scale of the business rises.

What does this centralisation mean for Punjab?

Nothing good, actually.

The visible damage is that many small companies operating in these spaces have been squeezed out. But the real damage goes way beyond that: as the Akali’s links to major industries grow deeper, the state is increasingly lackadaisical about collecting taxes from these industries. To make up for the revenue shortfall, it has stepped up taxes on other industries, forcing many businesses to exit the state.

“For most states,” said KR Lakhanpal, a former finance secretary and chief secretary of Punjab, “there are three major sources of revenue: excise, transport (or motor vehicle tax) and real estate (stamp duty).”

Punjab, he said, is losing revenue from all three.

In excise, for instance, Lakhanpal estimates that half the alcohol sold in Punjab is illegal. Therefore, if the state earns Rs5,000 crore from excise, then it is losing an equal amount.

Anurag Verma, commissioner for excise and taxation, did not respond our queries. Former excise commissioner A Venuprasad denied there was any excise loss at all.

Another instance of the loss is the motor vehicle tax. In Punjab, the government charges a higher tax on ordinary buses than on luxury buses—and, remember, the Badals have a major interest in the luxury segment. As The Tribune article said, “The MVT (motor vehicle tax) per km per vehicle in a day is Rs3 for ordinary buses and on luxury buses… it is as little as Rs1.75.”

“This is regressive,” said Lakhanpal. “It is not a coincidence that many politicians are in the transport business—not just the Akalis, but also the Congress and the BJP.”

This is yet another reason the state exchequer is bleeding. As Punjab favours the luxury bus segment through tax structures and favourable time-slots, the state’s public transport companies suffer. The dividends they pay the state government have gone down.

Then, there is stamp duty. Punjab has kept the stamp duty high, while keeping the circle rate, or the government-defined value of land, low. This has created a real estate market dominated by black money, said Lakhanpal. People are spending more on land purchases than they declare to the government. “It would be better to bring the circle rates closer to actual rates and keep the stamp duty low—around 1%,” he said. “That way, defaults would be minimised.”

Or, finally, take stone crushing: when most of stones crushed and sold in Punjab is passed off as coming from Jammu & Kashmir, the state gains no royalty. The 2012 petition filed in the high court estimates annual profits at Rs10,000 crore. If proper auctions were held, most of that value would have come to the state.

At the same time, say people in the construction industry, the prices of both sand and stone for end-customers have gone up considerably after the Akalia came to power. This they attribute to the rent-seeking by the party’s associates.

“What you are seeing in the state is predatory extraction,” said Sucha Singh Gill, director-general of Chandigarh’s Centre for Research in Rural and Industrial Development. “90% of the illicit money is retained by influential people.”

Abhijit Sen, an economist and former member of the erstwhile Planning Commission, agrees. The ruling party, he alleges, is growing by strangling the state.

Deeper malaise

Besides these manifest issues, there are others just beneath the surface.

The last few years have seen the state government also give contracts to two business groups, both owned by Sukhbir Badal’s two brothers-in-law.

The first, Saraya Group, has interests in energy and liquor and is owned by Bikram Majithia, the younger brother of Harsimrat Kaur, union minister and Sukhbir Badal’s wife.

The second, with interests in telecom, farm inputs and electrical equipment, is owned by Adesh Partap Singh Kairon, who is married to Sukhbir Badal’s sister Parneet Kaur.

When the state government enters into business deals with these companies—for instance, when it chooses the Saraya Group to set up co-generation energy plants for cooperative sugar mills, or awards telecom and farm contracts to Kairon’s companies, it might be violating the Peoples’ Representation Act.

Or take the PTC television channels owned by Sukhbir Badal’s company G-Next. As this report in Firstpost says, the network got government ads worth Rs78.32 lakh between 2007 and 2008. This was at precisely the time “when it [the PTC Network] had just been launched, and needed financial support,” says the article.

In effect, Parkash Singh Badal’s government has sanctioned ads to a TV channel owned by his son, and awarded contracts to companies owned by his son-in-law.

 

The role of Sukhbir Badal

Long-term observers point out that the lines between business and politics were never so blurred, even during the previous reigns of the Akali Dal.

So why now?

Much of the onus for this is placed on deputy chief minister Sukhbir Singh Badal, the son of chief minister Parkash Badal. A cabinet minister in the state government, who did not want to be named, alleged: “Sukhbir is mainly a businessman. He is running the state like a private limited company.”

The growth in the younger Badal’s net worth puts most conventional investments to shame.

In 2004, when he stood for Lok Sabha elections, he and his wife pegged the value of their assets at Rs13 crore. In 2007, when he contested state elections, the couple’s assets stood at Rs67 crore. Seven years later, in the run-up to the 2014 Lok Sabha polls, Harsimrat Kaur Badal declared joint assets of Rs108 crore.

That’s a rise of Rs95 crore over 10 years. An eight-fold increase in 10 years. In contrast, a person who invested, say, Rs1 lakh in fixed deposits in 2004, would have seen a 2.3-fold increase—not factoring in taxes.

Strikingly, while the fortunes of the Badals and Akali Dal leaders have gone up, the state’s welfare delivery systems have been gutted for want of money.

This post first appeared on Scroll.in. We welcome your comments at ideas.india@qz.com.