The Hindu Business Line : Less and less equal

The legitimate power the government has to keep the market honest and favourable to the consumer could well be lost if the public sector units are allowed to slip further.

It has long been acknowledged that monopolies fatten and competition sharpens. Now the public sector is demonstrating how true that is. Having occupied the commanding heights of the economy for decades by virtue largely of its monopoly status in many sectors and fed well on consumers who had no choice, the public sector is now showing up to be less and less equal to emerging competition from the private sector. The latest case in point is the airline sector, where the mark et share of the state-owned Air India in the domestic skies has slipped five percentage points to 14.7 per cent in the first quarter of 2008. This has happened despite the merger of the erstwhile Air India and Indian Airlines that was meant to confer scale economies, strength and new energies on the public sector carrier to do battle in what was becoming a fiercely competitive market. Some would believe the problem really has stemmed from the merger. Integration of the staff has not been without turmoil; inter se seniority issues have sapped morale, just when the arrival of new aircraft, long-delayed by government prevarication, may have helped rejuvenate the fleet and restore the sagging image of the airline. Whatever be the case, customer experience has not changed enough for the better.

The recent performance of two other public sector behemoths and one-time monopolies, Bharat Sanchar Nigam and Mahanagar Telephone Nigam, is also instructive, for their combined share of the mobile telephone market has shrunk to 17 per cent in December 2007 from 20 per cent the previous year. To the credit of the state-owned units, they had held on gamely to their 20 per cent share for a full three years from 2003 until equipment procurement hit a Ministerial roadblock and sapped their ability to increase the customer base at the rate they would have liked. Once again the vagaries of the Government’s decision making had cast its shadow.

By enervating the public sector units, the government has done considerable harm to consumer interest in a manner it had perhaps not foreseen. Even in a crowded and competitive market, there are times when pressures mount high enough for producers or service providers to band together in a cartel to hoist prices. In both the airline and telecom sectors, the public sector participant has more than once in the past lowered fares and set the tone for private sector competitors to match, the one-rupee-a-minute tariff for national mobile calls being a recent instance of BSNL leading the charge to lower prices. That is the legitimate power government has to keep the market honest and favourable to the consumer. It could well be lost if the public sector units are allowed to slip further.

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