Rent Seeking

Tullock (1980) defines rent-seekers as individuals who invest and not improve productivity

but simply raise their income by lobbying and acquiring special advantage or rights from the

government. These special benefits controlled and allocated by the government vary from

allocating property rights, be it by certain laws, regulations, subsidies, taxes, tariffs, import

quotas or by awarding contracts in public procurement. Rent-seeking activities may be

efficient and rational from the standpoint of these individuals; but, involve a tremendous

waste from the standpoint of the society as a whole.

India has always been known for its endemic corruption and rent seeking activities. Coal

mining, a part of mining industry had under gone a rampant rent seeking activity during

2005-2009. During the 10th 5 year plan from 2002 to 2006 there was an increasing demand of

coal by the power plants for its operations. Due to lack of supply of coal to these companies,

price for coal went up from $56 to $98 in 3 years. To overcome such shortage of supply Coal

India Limited (CIL) and GOI decided to allocate captive blocks of coal to power industry.

These blocks were assigned to the PSE’s and private companies by the screening committee

of CIL. Due to lack of transparency in allocation of these blocks, the allotment procedure was

changed to competitive bidding in the year 2005. However, in order to seek benefits, ministry

of coal never followed the process of bidding and instead issued block on letter of

recommendations from state government. This activity created benefits for government and

bidders. On the other side, there was a social loss of 1.86 lakh crore to the exchequer.

The delayed response to the coal gate scam began in 2012 with the formation of an Inter

Ministerial Group (IMG), who decided to de-allocate (14 firms) and forfeited the Bank

Guarantees (BG) – (13) of the companies that did not develop allotted coal blocks. In 2013,

Indian government offered...