Ease of shooting ourselves in the foot

J Mulraj | Updated on November 02, 2019

India has been improving its position in Ease of Doing Business, and is now at #63 out of 190 countries. If there was a ranking on Ease of shooting oneself in the foot, we would probably be #1. Consider two recent examples of asinine decisions and policies which seriously dent our competitive abilities as well as our carefully cultivated image as a country that welcomes investment.

Lines crossed in telecom: In order to understand the foolishness of the mess in this sector, we must first be clear in our minds about how we view spectrum. Is it, as both government and the judiciary believe, a scarce resource of the Centre, which must be sold at the highest price, or is it a ‘commons’, to be sold at a reasonable price, for common good, to benefit the people.

When 2G spectrum was first auctioned, it was sold exorbitantly, and, to fetch high prices for it, the government restricted the number of players to two per circle. Mobile telephony was unaffordable, customers paid ₹16/minute for both incoming and outgoing calls, and it wasn’t making money. So the government switched to a revenue sharing arrangement, and allowed more players per circle. Voila! Call rates dropped, the sector became vibrant and everyone made money.

However, the definition of ‘gross revenue’ for the purposes of determining the Centre’s share included non-telecom revenue, and this was disputed, and finally, last week, the Supreme Court held that since the telcos had signed agreements, they accepted the definition and were bound by it. A Titanic-iceberg like demand of ₹92,000 crore has been raised, which is large enough to wipe out all competition to Jio. Which means that government’s future revenue from spectrum sale will fall sharply, in the absence of competition.

It also deals a serious blow on Ease of Doing Business (and catapults us to #1 in Ease of Shooting Ourselves in the Foot). Already overburdened with debt, there is a huge risk of a spike in NPAs from defaulting telcos (virtually a certainty).

Mindful of this, the Centre is thinking of a relief package. Should spectrum not be viewed as ‘commons’?

Then, we see another folly, in the mooted merger of VSNL with MTNL, both wholly-owned by the government. The government plans to renew their spectrum licence for free, and to fund a ₹14,000-crore early retirement scheme at its cost.

This is classic Shooting Oneself in the Foot!

It destroys the industry. Privately-owned telcos must pay for spectrum, and for any VRS offered, so this is a non-level-playing field which ought to be legally challenged by other telcos and by taxpayers.

The airline industry was ruined by similar subsidisation of Air India, causing the demise of private airlines Jet. This will happen here too.

Bankruptcy of clear thought and planning

When the Bankruptcy Code was introduced, it gave rise to new hope for a clean-up, within the stipulated 270 days, of stressed assets with banks, and a release of stuck loans. But the procedures weren’t given a lot of thought, and the system was gamed. Earlier, by virtue of a bizarre decision of the NCLT Court to equate secured creditors with unsecured/trade creditors, a mockery of established norms; and now, by an inter-agency dispute. The Enforcement Directorate, under the Ministry of Finance, seeks to attach assets of Bhushan Steel at the eleventh hour, when Jindal Steel had almost agreed to buy it. The Ministry of Corporate Affairs opposes it.

Can we seriously expect buyers to bid for stressed assets when the goalposts are being changed and they don’t know what they are buying? Can we stop SOITF?

Whist we are busy doing silly things, China marches ahead. After USA it files the most patent applications. It spends money on future industries and leads in AI (Artificial Intelligence, not Air India), 5G telephony, robotics and facial recognition.

India spends money on rescuing failed enterprises like Air India, VSNL, MTNL and, on a mission of greed, destroying poster children of liberalisation like Civil Aviation, Teecom and Banking.

Unless we see sensible behaviour, we cannot be very sanguine. To convert potential into reality needs sensible action, not slogans.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

Published on November 01, 2019

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