India’s polity has the Sadim touch, the opposite of the Midas touch. Anything it touches, even gold, will turn to dross. After economic liberalisation began, these sunshine sectors were booming — telecom, civil aviation and private banking. Now they are not. Let’s look at how they were murdered.
A large part of the script has to do with the lack of clarity of objectives, by policy makers.
The lack of clarity was whether spectrum should be treated as a scarce resource, and priced exorbitantly, or, as a ‘commons’ resource, to be used by the people, and priced reasonably.
Belatedly, the government decided in favour of the latter. It took a share of revenue instead of an upfront license fee, and discarded the duopoly.
This is when the sector boomed. Call rates fell to the lowest in the world, operators made money, the government got more revenue due to higher traffic.
The glitch, now become a millstone, was in the definition of what constituted ‘gross revenue’ for determining the government share. The telcos felt confident that ‘non-telephony’ revenue would be excluded, as also the benefits/discounts offered to customers to stay in business.
A recent Supreme Court judgment decided in favour of the Centre and the telecom industry is asked to pay over ₹1-lakh crore, including penalty and interest. Since some players are already shut down/bankrupt, the burden falls on Vodafone-Idea and Bharti Airtel. They are already in heavy debt and cannot borrow to pay the amount; so most likely would be compelled to shut down, something the finance minister states she’d be loath to allow.
The government has now allowed spectrum payments of ₹42,000 crore to be deferred by two years. Will it suffice? We don’t know. A closure of Vodafone Idea will result in chaos; number portability won’t be able to migrate millions of numbers fast enough.
The owners of Vodafone and Idea (Birlas) have stated unwillingness to infuse more funds. That wouldn’t send a good signal to foreign investors of the Ease of Doing Business.
Think about it . Defining gross revenue in this manner means that one partner (the Government), who is the sleeping partner, gets its share whilst the working partner, the telco, bears all the cost of staying in business.
There is also a dismaying lack of free market economics. Competition has to be on the basis of a level playing field. It is not. Government owned companies get access to cost-free, taxpayer funded, capital. Private companies carry a cost for its capital. The Government recently paid for 1. Free 4G spectrum to BSNL, and for a VRS scheme, accepted by 77,000 employees. Such cost free lollies aren’t available to private companies.
Civil aviation: This sector, too, does not have a level playing field. Once a sunrise sector, it has seen the collapse of airlines like Kingfisher and now, Jet. In this sector, too, there is a non-level playing field, with one player, Air India, able to dip into taxpayer money to fund its losses, at no cost of capital. This is not how a free market works.
One rotten apple spoils the whole basket. This one spoilt Kingfisher and Jet. And in telecom, BSNL/MTNL has spoilt Voda-Idea and Bharti.
It is well known that Air India’s travails started when it was ‘asked’ by the then Minister to buy more plaes than it needed or could possibly afford. The inanity of this decision has ruined 3 airlines.
Banks/NBFCs: India continues to have far too many PSU banks than are needed for assuring the safety of the financial system. We would be safe even if the Centre held a majority in SBI, and, perhaps two of the other big ones, including BoB, PNB and Canara Bank, and sells the rest. The perfidy of telephonic instructions to PSU bank managements to crony capitalists has led to a very difficult problem of NPAs, or bad loans.
The Union Government’s attempt to address this problem using the NCLT (bankruptcy court) has finally resulted in a large case, Essar Steel, beingen resolved., Bbut it took 830 days instead of 270. Partly, because of a bizarre decision, thankfully overturned, to treat secured, unsecured and trade creditors equally.
There are several other areas where the Centre needs to clear the ideological or electoral cobwebs and to create level playing fields. Electoral reforms to ensure that pre-poll alliances come with a 1 year lock-in, and not provide a opportunity for quick gains, should be introduced.
The economic slowdown can be reversed only if the objectives are clear, justice is swift, and governance fair and welcoming of enterprise.
Else, in the next downturn, which is coming, India’s stock market will underperform.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)