Saturday, June 18, 2011

Selling the family silver

In the 1930s, in what is now known as the ‘Great American Streetcar Scandal’, newly established automobile companies started gobbling up electric streetcar companies with a view to replacing the electric streetcars across cities with oil powered buses. Systematically, they went about destroying the streetcar companies in city after city till about the 1970s by which time their mission was accomplished.

By then the American transportation landscape became what is today — almost no public transport in most cities other than the very big ones and heavy dependency on cars. In order to benefit their core business, they systematically went about buying and then deliberately destroying their competitors.

The UPA Government today is involved in multifarious scams. The scams range from an assortment of selling telecom licences cheaply to overspending on sports extravaganzas. Apart from these, there are other scams under the guise of poverty alleviation schemes. All of these are direct scams where the exchequer is getting looted one way or the other.

While this is happening, there is another category of scams that is not getting the attention it should. This is the type of scams perpetuated like the ‘Great American Streetcar Scandal’ — where there is no misappropriation of money — hence ‘Type B’ scams. These scams are the deliberate and systematic destruction of value across Public Sector Units so that their competitors in the private sector benefit.

Two immediate examples come to mind — BSNL and Air India. Not too long ago BSNL was Number 2 in mobile subscribers’ market share; since then it has seen a steady decline to Number 4 today. It has not been allowed to buy equipment nor enhance capacity. A tender floated in 2007 to procure equipment was cancelled by the then Telecom Minister (a certain A Raja).

As a result, BSNL lost crucial time until it was finally allowed to buy equipment for about half the number of lines it wanted. After that one more equipment tender was cancelled with the result that BSNL has been steadily losing subscribers while the others have merrily added capacity. What could have been a great PSU is now reduced to an ‘also ran’ and will soon be a dead unit, unless someone with foresight revives it.

Air India is of course hit by a double whammy. On the one hand it has invested in brand new planes (68 of them) and on the other it is not allowed to bid for newer routes so that it can fly those planes and recover the money. Net result? A debt burden of about `40,000 crore and losses of about `7,000 crore. And guess who is flying on many of the newer routes?

No prizes for guessing who benefits in both these cases. The private sector, in both airlines and telecom, has gone from strength to strength in the same timeframe. Coincidentally, both BSNL and Air India are not listed — which prevents their close scrutiny.

Whether the beneficiary companies in this regard channel the benefits in cash or kind to those in power who enable this is a separate investigation. And in those murky cross-holdings and money paid to consultants and stakes given to various people may lie a story. But regardless of whether that has happened, this is a new type of scam — where the Government deliberately kills its own enterprises so that private companies can benefit.

(Published in The Pioneer Today as an Op Ed)


Phoenix said...

'Family' Silver being the key word. Can you tell me what business the Government has running an airline in the first place? How does this 'benefit the common man'? Besides allowing our MPs to travel in first class on taxpayer money. Even the case for telecoms - considering the pvt companies have managed (through various nefarious means, no doubt) to reduce the cost of a call to almost zero, surely we don't need the government to step in to provide telecom services. I don't know in which year these PSUs were considered good. Air India has been an awful airline for a long, long, long time, from the smell of BO in the cabin to the retired-school-disciplinarian flight attendants. Sad to see you stand up for such mediocrity. While there may have been a conscious decision to degrade these 2 PSUs lately, they never did themselves any favours either.

ecophilo said...

Completely agree with you.

The point I am trying to make is that now their value has been so badly downgraded that they will not even fetch a good price if disinvested. Now somebody will come along and ask for more funds and they will be eaten up and so on. The government typically throws good money after bad.

That was the point of this piece. At an overall level in the first place the government has no business running Air India - much less BSNL.

But having got them (thanks to their own 60 years),the best to do is to make them perform so that it can be sold, right?

And where are we now?

Savitha Rao said...

Besides the vested interests of individuals , political parties at play - there is the incompetence factor of the govt which is responsible for the sorry state of Air India , BSNL and similar enterprises.

As far as this govt goes there is scope to form a scam index (similar to BSE ). This is one index that would grow daily.

Savitha Rao said...

In addition to vested interests of individuals , political parties - there is the incompetence factor of the govt / govt enterprises.

As far as the current govt is concerned there is scope (and possibly need) to create a scam index. This is one metric that will show a daily increase !

Meenakshi Shivram said...

Congratulations on your blog making to the op ed page.

I understand your argument. However, I do think that both you and Phoenix believe that the 'government' does not have a role to play in some sectors. This is a very elitist argument, isn't it? We want the government to run schools and hospitals, maybe even trains and postal services, but they should not enter those services that is used by the rich.

Instead of insisting on quality service in every perceivable sector, we want the govt not to intervene anywhere - because it messes up everything! This is just the ploy used by work-shirkers - you do it for me , I'm no good at all and you are so good at it!

The govt needs to be taught to govern and not give up governance.


ecophilo said...

Meenakshi, honestly, the government does not need to do anything - if they give good honest governance thats enough. Minimum government, maximum governance. But in our country asking for that also turns out to be too much.

Should the government be in the business of running hospitals, schools. Again, I would say, no. If you see the Arvind Nethralayas and the Narayana Hrudayalayas - these hospitals are far cheaper and better than any private hospital. And they use a simple principle - take money from who can pay (PLU). I dont recall the report, but I have read that there are parents - dirt poor - who want their children to go to private schools - and they struggle for it because the government schools are really bad.

On the other hand, the government can choose to run airlines, 5 star hotels and spas for all I care. As a taxpayer, I want my money to be used well - not to line the pockets of "poets" and "farmers". In the past 60 years though, apart from flashes in the pan, most taxpayers money has been squandered in the name of running organizations.

Savitha, re Scam indexes, yes it is a great idea. So are Scam Olympics - we will win hands down.