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Why is privatisation still a dirty word?

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Economy

Debates & opposition concerning these issues are part of this process & those that oppose cannot be termed 'vested interests' by those that seek 'speedy' privatization with claims that the aam-aadmi is paying a huge price & that privatization has already made things move towards services becoming world-class (whatever that means) .

When a comment as above was made supposedly in response to a post I made (check this), I thought the entire matter called for a separate debate, and hence this blog.

World-class (whatever that means):

I suppose nobody would deny that Indian products and services have come a long way from the pre-liberalisation times when the public sector was supposed to dominate the commanding heights of the economy, except of course where liberalisation hasn't happened - more specifically in the critical infrastructure areas like power supply, water supply, public bus transport services, railways.

And, though not much of a globe trotter these days, unlike many of my worthy friends here, I dare say that our airlines, telecom, insurance, banking, TV/ radio broadcasting, courier and such services are today comparable to the best in the world. Yes, my info is not necessarily first hand, and as such, I could stand corrected if I am wrong.

Vested interests:

Yes, I admit not everybody who is not for change, inspite of the overwhelming evidence favouring it (which is also largely not denied), does it because he/ she is harbouring vested interests. But,'vested interest' can even be driven by non-pecuniary benefits - like when you support a temple, dedicated to your favourite deity, even when it encroaches onto the footpath, which action is against overall public interest.

That said, while I am not sure if the PM had any concrete basis in making the allegation that the Koodankulam agitation was funded by outside agencies inimical the country's progress, I have often wondered how many of the 'professional opposers' sustain their activities.

Apart from vested interests, the reasons can be any or a combination of the following -

a) ideology;
b) old-world romanticism (check this);
c) maai-baap sarkaarism (only government can be trusted to do everything);
d) patriotism;
e) resistance to change (status-quoism);
f) fence-sitting tendency;
g) wanting to be seen to be siding with the underdogs;
h) wanting to be seen to be politically correct;
i) fear of the unknown;
j) fear of private sector marauders who could exploit a situation to the hilt to the detriment of the environment, given the poor regulatory regime (actually, even Coal India's and other PSU's track records are not too good on this score, either);
k) fear that unless the regulatory mechanism is fully and perfectly in place, the private sector will run riot;
l) opposing for opposing's sake;
m) opposing since it's supported by somebody you have a specific dislike for;
n) plain cussedness;
o) guilt complex out of availing world class services, even as the poor are getting a raw deal even on essential services (provided by the government);
p) fear that the private sector will make huge profits, even if in the process you get better services at cheaper prices, and the players pays their taxes;
q) fear that the Corporate sector will become all too powerful and an uncontrollable lobby;
r) Corporate sector's inherent drive for limitless growth, and its impact on the environment;
s) the ever-widening gap between the rich and poor.

The list has been compiled by my understanding of the reasons why many of the people I normally interact with are not prepared to come out openly in support of privatisation/ outsourcing, that extending even to the few who will perhaps go to the extent of saying 'not over my dead body'. Well, the list is not comprehensive - may be others would want to add on, as we go along.

The reasons listed at q,r & s are actually mine. But, against 'q', I would like to think that if the mecca of capitalism can elect an Obama for its President, humanity has a way of correcting the excesses. And, the way economic growth has more or less plateaued out in the developed world, shows there is after all a limit for growth - point raised at 'r' (either way, we are far from that stage, and fast-paced growth is important for us - check this. The important thing is to ensure that the growth moves along the right lines). Further, many who become rich, eventually turn to philanthrophy - point made at 's'.

Whatever, there is no gainsaying the importance of an effective regulatory regime, and that is all the more reason why the government should be concentrating on that. Also, since its all important role as the regulator gets badly compromised when it becomes a player in addition, as I have been repeating ad nauseum, it should start easing itself out of the role of the player, except where its presence is essential.

Muralidhar Rao

PS: Be warned, in future, if you oppose privatisation/ outsourcing, you will be fitted into one of the above slots :))).

Comments

murali772's picture

promotion of consumerism

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Another aspect of privatisation that is worrisome, as far as I am concerned, is its tendency to promote consumerism, and its serious impact on the environment. This is already covered under 'r' above; but, I thought needed specific emphasis.

As such, whereas we had a strong re-use, re-cycle culture earlier, it is slowly giving way to 'use & throw" culture.

Muralidhar Rao
murali772's picture

playing to the gallery

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Suggesting that the nation would deteriorate if education, health, water supply and power sectors were privatised, noted Kannada writer and Jnanpith awardee Dr U R Ananthamurthy said the BWSSB should not be privatised. He was speaking at the 121st birth anniversary of B R Ambedkar, organised by BWSSB SC/ST Employees’ Association on Thursday.

The writer lamented that as education was privatised, many children were not getting what they needed.

“Due to privatisation, chances of people getting exploited are more,” said BWSSB Chairman Gaurav Gupta. He added there were many public sector undertakings which have faired well including the BWWSB.


For the full report in the New Indian Express, click here.

Dr Ananthamurthy's views are well-known, and that's why I presume the association lot chose him as the chief guest. I think I would classify his reasonings as under a,b,j, q,r,s in the list in my opening blog. And, as for Mr Gaurav Gupta, I think I need to add a new classification as 'playing to the gallery'.

On the role of the private sector in water supply outsourcing (it cannot be privatisation here), there have been enough debates on PRAJA, which can be accessed here and here. Likewise also in each of the sectors, lised out by Dr URA, all of which may also be accessed by a 'search' on the site.

And, on the question of exploiting workers, there is none to beat the government agencies, as clearly seen here.

Muralidhar Rao
kbsyed61's picture

Have you ever seen a defaulter take public transport?

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Source - Times Of India

"...Have you ever come across the promoter of a company that has come for restructuring take public transport?" KC Chakrabarty, deputy governor, Reserve Bank of India questioned bankers at a seminar on corporate debt restructuring organized by the Centrum group. According to the deputy governor restructuring of loans has been heavily biased in favour of large borrowers and had been predominantly done by public sector banks. .."

"...Mr Chakrabarty said that the concept of promoters brining in own equity has been given a go by. "Equity does not mean money that is brought in from another lender. Today we have these so called private-public partnership projects (PPP) but where are the private funds in them? When a promoter raises funds from lenders he is bringing in public money" said Mr Chakrabarty. Responding to statement from bankers that large projects were being held up for want of government clearances, Mr Chakrabarty said that in cases where there is uncertainty about government clearance there is even more need to ensure a higher component of equity. .."

murali772's picture

what is the point being made???

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Have you ever come across the promoter of a company that has come for restructuring take public transport?

The answer is no. That is because the public transport system in the country (dominated by the government service providers) is so pathetic that once people get used to other means, they would rather commit suicide than switch back to using these services. And, that's what Mr Sheth, MD of Raj Travels, arguably the 4th largest travel company in the country, did recently, when the recession found his business too badly steeped in debt. And, there are plenty more such examples where they come from. Is that a satisfactory situation then?

As compared to that, a V R S Natarajan, the ex-MD of BEML, is now enjoying all his ill-gotten wealth, secure in the belief that the law can never catch up with him. And, there are plenty of examples of such public sector honchos too.

The law has caught up only with a Sukh Ram so far, that is when he is anyway just carrying on with one foot already in the grave.

According to the deputy governor restructuring of loans has been heavily biased in favour of large borrowers and had been predominantly done by public sector banks

I was running a fair-sized operation, even though in the SME sector, and having been banking with the largest PSU bank, I know the truth behind this statement. Nobody need tell me.

 - - Mr Chakrabarty said that "in cases where there is uncertainty about government clearance there is even more need to ensure a higher component of equity. .."

So, why for instance did they get carried away by Vijay Mallya's flamboyance, and fund the acquisition of Deccan Aviation by his KingFisher, even though KingFisher had never made profits right from the beginning? The only reason why KingFisher is still afloat today is because the government doesn't know how to answer for the huge losses its banks will then suffer. If KingFisher had been funded by the private sector banks, they would have forced its winding up long ago to cut their losses, rather than chase a pipe dream, particularly given the present government's indecisiveness.

And, if we had a decisive government, perhaps a consortium of private bankers would have teamed up with an international aviation major and funded the revival after buying over the equity from the government banks.

That brings me to another point. When a private sector operation runs into serious problems, the revival (MAYTAS, taken over by Mahindra's) or closure (there are too many to list) all happen very fast, unlike in the case of the public sector - NGEF, Mysore Lamps, ITI (check this), HMT, Cycle Corpn of India, the list is endless, all of them eating up good tax payers' money.

Anyway, all of this does not detract from the fact that the opening up of the aviation sector has helped the country, its people, as well as the economy, right? And, for heaven's sake, you are not saying that we should revert to earlier days of IA monopoly, right?

Ah yes, I forgot. The point you are perhaps making is that as the private sector is not all of angelic, right? But, Sir, who had ever said that?

And, finally, do you want to figure out which of the factors in the listing, I had made in the opening post, would apply to you? I am making an overall study - some apply to me too.

Muralidhar Rao
murali772's picture

The Q factor

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Bishwajit Bhattacharyya retired as India’s additional solicitor-general on Friday, November 9. Hired specifically to fight on behalf of the government on all indirect taxation cases involving thousands of crores, Bhattacharyya says he spent most of his time watching his client (the government) enfeebling him and handing things on a platter to the lawyers of the corporate houses.

- - - - An important swipe in the process is on the supreme court registry, which decides which cases would get heard. Here our protagonist waits for days for his listed matter, but the Vodafone case breaks the queue because of Harish Salve’s “mention.” Here, $11 billion (over Rs 55,000 crore) had been transferred from Cayman Island to Hong Kong for a telecom infrastructure that existed in India, but the court decides that the Indian taxman (CBDT) isn’t within her jurisdiction**. Bishwajit devotes an entire chapter on how he, as an ASG, sat awaiting his own matter, only to see the three-judge SC court overlook that the same investment on that very telecom infrastructure was considered to be within the jurisdiction of the Foreign Investment Promotion Board (FIPB) just a few rooms away from CBDT in North Block itself, and without adequately hearing Mohan Parasan appearing on behalf of UOI!

NB: **The widely-respected Justice JS Verma has on November 10, 2012, endorsed in my presence this criticism of the Vodafone judgement as “among the three worst decisions that the SC will have to live down” (the other two, as per Verma, being the Habeas Corpus case and the JMM Bribery Case). Among the former chief justice of India’s audience was a sitting judge of the Supreme Court!

For the full report in "Governance Now", click here.

This is plainly an elaboration of the point made at 'q' in the opening post. And, this is what makes even ardent proclaimers of privatisation like me feel a bit unsure. But, I would still like to believe that the voices of the Bhattacharyya's and Arvind Kejriwal's are beginning to ring louder, by the day, resulting from the current democratic churning, and is reaching a point where governments have no option other than to take note of them, and correct their ways. It is currently a slow proceess, but I would like to believe that we are fast approaching the tipping point. And, once we cross that, I expect it will be a much faster process. The whole aim of PRAJA in fact is to contribute to that.

And, anyway, like the late Sri C Subramaniam had once said - "It is nobody's case that privatisation is a panacea for all evils. With privatisation, there will continue to be problems. But, at least, these will be new problems, compared to the earlier ones, for which we could not find solutions even after 50 years".

 

Muralidhar Rao
murali772's picture

Wal-Mart Conundrum

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The Times’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.

- - Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam’s Club in one of Mexico City’s most densely populated neighborhoods, near the Basílica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit. Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.


For the full report in the New York Times, click here.

This is indeed what I had meant at 'q' and 'r' in my original post. Well, Wal-Mart seems to be stretching things to its limits. And, its so-called internal investigations appear to be a total sham.

The matter was discussed amongst Hasiru Usiru members, and as was to be expected, there was all out condemnation of Wal-Mart, private sector, et al. However, the following two posts struck a slightly more balanced note:

AH:
This is a devastating exposé, and coming from the New York Times, has the highest credibility.

It will be interesting to see how it plays out in the US. They are not popular anyway, the reputational damage from this is enormous and there is definitely going to be huge fines and maybe some convictions. This could be the beginning of the decline in Walmart's dominance in the US market.

Imho, the timing of this is somewhat unfortunate for us in  India. Retail FDI is more than Walmart, and has many potential upsides, but I know many in this forum disagree.


VM:
Interesting because of the FDI issue in India as of now and and perhaps  general but erroneous identification of FDI wholly with Walmart for India. But if we are talking about bribes and those kind of things to subvert a city plan, and in the case of Bangalore the Masterplan, then this is a very very old  issue perfected to fine art by very home grown personna. And we are not talking of day to day bribes for permissions , but the big ones to change a master plan even after a draft is circulated.

So while there could be very many reasons to oppose the walmarts of the world,me thinks this should be on the basis of a new import of bad "technology" and business practices , and not those which are already used in India with gay abandon.


Quite as pointed out by VM, it is not as if these kinds of goings on are unknown in 'Hamara Mahan Bharath'. But, when big operators go about these things in the scale they are wont to do, it becomes difficult to hide them, particularly in as vibrant a democracy as we have now become. And, perhaps therein lies the remedy to it all. I would anyday choose to bet on that than banking on the government to provide the services and produce goods.

Muralidhar Rao
murali772's picture

Sachin Pilot takes note

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Calling for a need to define lobbying through a legal framework to differentiate between advocacy and bribery, Corporate Affairs Minister Sachin Pilot has favoured disclosures by companies and industry bodies about their representations to government on specific policy issues.

"I think that time has come to define what is acceptable and what is not. What is legal and what is not legal. I think, in most countries we have that definition, but in India, it is pretty vague. It is wrong to assume that lobbying means bribery, but some people allege that it is bribery," Pilot told PTI in an interview here.

There has been a heated debate within Parliament and outside in the recent past on lobbying after it came to light that various global companies, including retail giant Wal-Mart, lobbied with the US lawmakers to push for their entry and other business interests in the Indian markets.


For the full report in the Indian Express, click here.

It was inevitable that it had to happen. The answer then plainly lies in stregthening the democratic processes and its various institutions.

Muralidhar Rao
n's picture

Some articles for

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Some articles for thought:

Selling a fake dream (snippets below)

In the mid-1980s, Pepsico came up with a proposal to bring in the second horticultural revolution in Punjab.
Some 15 years after the project was approved, Pepsico’s horticultural revolution is all but forgotten.
Pepsico had promised to create 50,000 jobs. In response to a question in Parliament, it was revealed Pepsico had in reality created less than 500 jobs, including employing 250 unskilled workers.
It is now the turn of Wal-Mart and other big retail giants. FDI in retail is once again being projected as a panacea for all the ills plaguing Indian agriculture.
In the US, where Wal-Mart has completed 50 years, if farmers were getting a better income, there was no reason why the farming population should plummet to less than one per cent of the population.
Farmers in US survive on the farm not because of Wal-Mart but the massive subsidy support, which includes direct farm income.
Europe provides the highest amount of subsidies, including direct income support. But because 74 per cent of these subsidies are cornered by corporations and big farmers, small farmers are quitting farming.
It is not big retail, but direct income support that keeps farmers in agriculture.
In India, organised domestic retail has not been able to sell cheaper. A Nabard study for Hyderabad shows Reliance Fresh and others charging 15-20 per cent higher prices.
To say that 40 per cent agricultural food that goes waste in India will be drastically reduced is also an illusion. In the US too, 40 per cent food is wasted and much of it is after processing where Wal-Mart’s should have played a much important role.
Regarding employment, for a $450 billion turnover, Wal-Mart employs only 2.1 million people. Whereas for an estimated $460 billion market, Indian retail employs 44 million people.
The cooperative dairy structure, which led to the evolution of the Amul brand, is the right approach. If he could do it for milk, which is a highly perishable commodity, there is no reason why it can’t be replicated in fruits, vegetables and other agricultural commodities.

The world of lobbyists

A ray of farming hope (success by not utilising private resources or intervention)

I have found Devinder Sharma to be very good in matters concerning agriculture and allied topics.  Sometimes he writes about other topics like politics or economy that are not really his forte.

PM Manmohan Singh opened up retail after the underachiever article in NY Times (or was it Wash Post? or Time magazine).  It may or may not have been serendipitous.  Though considered prestigious, the publications are also prone to lobbying.

Point 's' in the original post: charity is not really practiced in the Indian context.  So, the gap will widen.  No one system is perfect.  Just need to find the right mix of capitalism and socialism with may be some dose of communism to get things done.  Govt. has no business providing services except where private players won't do so because of profit.  Even in those cases, govt. can outsource but monitor, regulate and enforce rules.  And, some how prevent or reduce kickbacks or "contributions" to regulators / inspectors that atleast keeps from affecting the common citizen.  TRAI is a good example as of now.


abidpqa's picture

Bribes

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Those who pay the bribe pretend that they do it only to do legitimate business, wich they think is denied by government.  But that is never true and some times used to commit crime as might have happened in Delhi.

murali772's picture

AAP and the P-word

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Excerpts from an interview of Ms Shazia Ilmi, of AAP, in News Laundry:

Interviewer: Are you Socialists, or do you believe in the concept of the free market?

SI: These are just labels.

Int:
Labels stick…

SI: Look, we’re against crony-capitalism, not Capitalism. Corporate practices should be ethical.

Int: But you are for privatisation? Legally regulated Capitalism?

SI: Yes, yes!


For the full interview, click here.

Good to see this nascent political party not wanting to be "politically correct" like most are wont to, even with knowing fully well that privatisation is the only way out. AAP stating it in such bold and unambiguous terms is a clear reflection of the thinking of the country's younger generation on the subject. Socialism is so yesterday. Now that they have done it, will the BJP, and even the Congress, get bold too? They should realise that in today's world "political correctness" is synonymous with talking straight.

Muralidhar Rao
blrpraj's picture

runaway privatization

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Runwaway privatization without regulation, checks & balances is a dirty word in my humble opinion. The best example i can give is the private bus service in South Canara district. The private bus drivers there make formula 1 race drivers look like amateurs. Privatization should always be within a framework with adequate checks & balances. Regular independent third party audits have to be conducted to ensure that services offered meet certain quality & safety standards. One are in which privatization seems to be working with visible results is the airports at Bangalore, Delhi and Mumbai. I have seen a visible change in quality of airport infrastructure at Mumbai and Bangalore due to privatization.

murali772's picture

no issues there, whatsoever

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@blrpraj - Isn't that precisely what Shazia means when she endorses "Legally regulated Capitalism"?

Everybody agrees with that.

Muralidhar Rao
xs400's picture

Privatization no panacea

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@Murali

with due respect to you sir, 

You just need to see the corruption and mismanagement in the private sector to realize that privatization is no panacea for solving  any of our problems. The private sector is just an arm of the corrupt. 

While the focus has been on government performance, and we have the RTI bill etc, one must realize that behind the glitzy exterior lies another monster.

Any public facing private sector company should come under the same scrutiny as the government.

murali772's picture

Whoever claimed privatisation as a panacea?

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For heaven's sake, whoever has claimed that? Certainly not me.

And, if there is corruption and mismanagement in the private sector, the keen market competition will ensure that such players will have to sell out, or just shut down. And, when they shut down, it's not the tax payers' money that's involved.

A case in point is the airline services, where even as Indigo and Go-air are providing excellent services and making profits, KingFisher has had to close down, and JetAir is having to explore all kinds of alternate ways to remain in business. As compared to that, Air-India is kept alive on dollops of tax payers' money for providing its lousy service.

The other sectors too are teeming with similar examples.

And yes, PPP projects, involving substantial public stake, should come under the ambit of the RTI. Haven't the courts ruled accordingly, already? Beyond that, there are the regulatory bodies like the Company Law Board, Competition Commission of India, etc, all of whose functioning need to be strengthened, if not done already.

Also, please understand that most of the AAP lot are genuine Socialists (I'll claim I am one too, having been born in Kerala :))) ), as compared to the total psuedo's in the various political parties bandying about their Socialist badges. Inspite of it all, if the AAP lot have chosen to support privatisation openly, it is obviously after a lot internal deliberations, and in full appreciation of its merits compared to the Socialist/ Statist approaches. It is not as if the Congress and the BJP too are not appreciative of such an approach, but, having played footsie with all kinds of crony capitalists all these years, and created a phobia of the private sector in the minds of the public, they are afraid of talking straight. The AAP has no such baggage and can talk openly with conviction.

I have stated enough on the subject elsewhere on PRAJA too. Do bother to read them, and may be join the straight-talking lot.

Muralidhar Rao
murali772's picture

a rare & unique category

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There is a very unique category for whom private sector is an absolute no-no in the case of public bus transport services, even as they celebrate their (private sector) presence in civil aviation, airport management, apart from being welcoming of them in hotels, power, airlines, telecom, besides from other areas too, I expect - check here for fuller details.

I'll list it at "t" now, after having reached upto 's' in the opening list.

PS: A PhD student from a foreign university, doing a study on water access for urban poor, met me yesterday (referred by her professor), and she said she found this particular blog of mine quite fascinating, and felt it could form the basis for a deeper study. She offered to acknowledge my contribution if she herself underttok the study :))).

Muralidhar Rao
murali772's picture

The co-opted experts

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My list has now to add no 'u' connoting the above lot.

I had mentioned here about how "think-tanks in the country are essentially lending themselves to get co-opted by the government mafia-like set-ups", in the context of their turning a blind eye to the machinations of government mafia set-ups to keep out the private players from the public bus transport services sector, using archaic acts like the Contract Carriage Act, etc, a fact brought out by none other than Mr J P Gupta, IAS, Commissioner for Transport, Govt of Gujarat.

Seeing my post, a 'power sector expert', about whom too I had mentioned in my post, responded directly to me, very positively, concurring with many of my thoughts, and offering to keep in touch, as also to take into account the factors, that I brought up, in his future deliberations. But, this was a one-off instance, with all the other 'experts', whose roles I have been openly critical of, just choosing to remain silent, even though I am certain they have been seeing my comments. As such, while I would like to believe that, this power sector expert's not giving sufficient importance to the transformation of the Delhi power scenario, with the entry of private operators, may not have been deliberate, in the case of the others, their silence has mostly to do with their wanting to retain the status quo in order to protect their vested interests.

For instance, where would the "research papers", referred to here, have any relevance, if the power distribution in Bangalore had followed the Delhi model? In fact, Karnataka was amongst the first states in the country to go in for unbundling, which was to be followed by privatisation of distribution, but which got scuttled somewhere along the way by the 'confederation of vested interest groups', the so-called 'experts' being part of the lot.

In the public bus transport scenario too, there are enough of them, the "BMTC Commuter Advisory and Facilitation Committee" (check here) being one such, which actually evolved out of BMTC's 'Commuter Comfort Task Force', which had got me co-opted into remaining silent about the goings on in BMTC for the one-year odd period that I was its Co-Chairman. I realised the game being played out, and did not accept the invitation to come on board the successor BCAFC, thereafter resuming my criticism of BMTC/ KSRTC, even more vocally.

There are other experts too. In fact, I am inclined to believe that the whole BRTS exercise in Hubli-Dharwar, using the 'expertise' of Embarq, was a part of the grand plan of the erstwhile Transport Minister to throw out "Bendre Nagara Sarige" (check here), and re-establish the government monopoly, which he could then milk.

During the Indian Airlines monopoly days, there used to be a 'Air Travellers' Consumer Forum', or something like that. It was as ineffective as today's BCAFC. The only purpose it served was to help the Chairman, whom I happened to know, to jump the queue whenever he wanted to fly. With the opening up of the sector, the Forum lost its relevance, and has possibly wound up, with the Chairman having to suffer the loss of the corresponding line in his visiting card. The competition is mostly taking care of the interests of the consumers today, apart from the DGCA. Converting DGCA into a regulatory body, as is proposed, will make things a lot better, added to the role that the Competition Commission of India too can play in such matters.

Likewise, when public bus transport services are opened out to competition, power supply is privatised in accordance with the Delhi model, water supply is outsourced to professional private players, the government will necessarily have to set up effective regulatory bodies. And, between the players and the respective regulatory bodies, they will bring in new technologies, upgrades, whatever, and the role of the favoured 'experts' will diminish considerably. And, that's what the experts are bothered about, and thereby chosen to become part of the 'confederation of vested interest groups' in order to perpetuate the status quo.  

Muralidhar Rao
murali772's picture

Lobbies can be tamed; but, not the mafia

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Christof Spieler moved to downtown Houston about nine years ago and began a reverse commute to a suburban office park. He took the No. 9 Gulfton Metro bus because he liked to get things done during the ride and hated sitting in traffic, but the service left much to be desired. The bus didn't run very often (every 20 minutes or more, even at rush-hour); transfers were hard to coordinate; and the pedestrian infrastructure near the stops was terrifying (to reach the office, he braved five lanes of car traffic without a signal or a crosswalk).
 
"It really gave me a good feel of what the system's like," he says.
 
Fast-forward to today and Spieler now sits on Metro's board of directors. An engineer at Morris who also lectures at Rice, Spieler played an instrumental role in developing Metro's Reimagining plan—a dazzling redesign of the entire bus system that stresses all-day frequency and smart connections. But he couldn't have done it without his experience on Metro as a guide, which makes him Exhibit A for why the people planning America's transit systems, from board members to senior management to project designers, should be riders themselves.
 
For the full text in "The Atlantic City Lab", click here.
 
Well, none other than namma Ramaliga Reddy avaru stated this not too far in the past (check here). And, similar pious statements have come from other neta's and babu's too, but all to be forgotten within moments of their being said. 
 
I had visited Houston and Los Angeles some five years back, and generally got the impression that, like with their gun (read here for more on that) and health insurance lobbies, the automotive lobby too was too powerful to allow for any meanigful advancement of public transport services. A reading of this article raises the hope in me that even the most powerful of lobbies can give in to reasoning, and work towards the overall betterment of humanity. And, when that happens, true democracy asserts itself, like the actual user here getting invited to the board of directors of the Houston Metro (their bus service).
 
As compared to that, in Namma Bengaluru, as also most of the rest of the country, the public utilities are in the hands of confederations of mafia's, presided over by the neta, any change becoming that much more difficult. All in all, this strengthens my stance for ushering in competition/ out-sourcing/ privatisation, as is most suitable to the specific service.
 
Muralidhar Rao
murali772's picture

Janata has long got over privatisation phobia, Mr PM

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Setting all speculation to rest, Prime Minister Narendra Modi on Thursday ruled out the possibility of privatising Indian Railways. Addressing a gathering after launching a Rs 213-crore expansion project at Varanasi-based Diesel Locomotive Works, Modi said the railways was the backbone of India’s economic development and there was no question of privatising it. - - - - “What we want to do is that instead of putting the common man’s money into the everyday running of the railways, put cash-rich investor’s money and get soft loans from international agencies for greater development of the railways,” he said, adding that the railways’ huge land parcels at almost every station can be used by investors.
 
For the full text of the report in the Financial Express, click here.
 
The PM still seems to suffer from a hang-up that the country's janata largely continues to harbour a "privatisation phobia", originally created and perpetuated by pseudo-Socialists, over the past decades. He should realise that the times have changed, a clear indication of it coming from the result of a yes/ no poll conducted by "New Indian Express"(accessible at the bottom left hand corner of the page linked here), following his statement, which gave an overwhelming 85% "NO" verdict to the question "Do you support Narendra Modi's decision to not privatise the Railways?". 
 
Now, all kinds of charges that the poll was rigged; the sample may not have been large enough, etc, etc can be made. But, the fact of the matter remains that nobody would even have dared rig such outcomes (even if the charge be true, which is unthinkable) in the earlier times, fearing the backlash from the pseudo-Socialists. The pseudo's are clearly on the run now.
 
And, as for workers - the genuine ones have clearly understood the gains from privatisation, and are fully for it now; it's plainly the unionist mafioso, whose vested interests will suffer, the only ones standing in the way. It's surprising that the PM hasn't seen through this yet. 
 
Notwithstanding all that, what does "put cash-rich investor’s money - - -  for greater development of the railways" mean? Soft privatisation - if you want to call it that, or a harsher term would be "privatisation by stealth", which is what the Congress was upto, and which eventually led to crony capitalism.
 
Modi doesn't need to do that - the earlier he realises that the better. He can do it step by step, and in the case of Railways, perhaps selectively. But why, for instance, shouldn't a manufacturing unit like "Diesel Locomotive Works" be privatised straightaway?
 
Muralidhar Rao
murali772's picture

a shortage is an opportunity for businessmen, either way

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In the context of a debate over TenderSure (check here), when I cc'd a post I made on SaveKoramangalaYahoogroup to HU Yahoogroup (supporting the overall approach), a certain activist responded with
 
So the argument is we now make way for corporates to loot cities?
 
To which, I responded as below:
Indian business-men are renowned the world over as the most intrepid of the lot. As such, if there are shortages of goods or services, whichever the sector, they will see it as an opportunity to make a livelihood for themselves, and the ones better organised will flourish too. 
 
As such, because of the BMTC's incapacity (to use just a mild term) to meet the huge and growing demand, we have the auto, maxi-cab operations in the un/ semi-organised sector meeting part of the demand; the aggregated taxi services, and of course, the car and two-wheeler manufacturers in the Corporate sector, providing the means to meet the demand.
 
Likewise, because of the incapacity of BESCOM, you have the Katiabaazi (thieving by hooking up onto the power lines), wood-fired chulha's, etc in the un-organised sector, and the gen-set, inverter, converter, battery manufacturers, all largely in the Corporate sector, again providing the means to meet the demand.
 
In the case of water supply, you have the tanker operators, borewell sinkers in the un/ semi-organised sector, and the borewell rig manufactirers, bottled water suppliers, water purifier manufacturers, etc, all largely in the Corporate sector. 
 
So, either way, business-men, or Corporates will exploit (loot, if you want to call it that) the opportunity and make money. Well, anyway, that's what entrepreneurship is all about.
 
Now, it's extremely difficult to regulate the un/ semi-organised lot, their being largely mafia operations that don't care much about rules. As compared that, the Corporates largely play by rules, since reputation, brand value, etc, are important for them, particularly given the increasing vibrancy of our democracy, which has already landed up enough wrong-doers behind bars (and more are on their way). Yes, they will lobby hard to change the rules to benefit them, using their money power too. But, surely, our democratic process is increasingly providing a check on that too - witness the recent taming down of the tobacco lobby. Apart from all of these is also the revised maxims that Corporates have set for themselves, as stated by a good friend, on an earlier thread, as "Sustained Maximization of shareholder wealth is only possible if wealth and well being of society is also maximized in the course of doing business, and the triple p bottom line accounting - people, profits, planet".
 
As such, if simultaneously the Corporates, who are manufacturing cars/ two-wheelers, are incentivised to switch at least partly to operating bus services; the gen-set/ battery manufacturers are incentivised to switch to power distribution; the water bottlers are incentivised to switch to water supply, we will be making the most effective use of our scarce resources. And, these three being key infrastructure areas, on which the country's economy, apart from the quality of life of even the aam aadmi, largely depend, we cannot afford not to have it any other way, either. Collectively, we need to make it happen. 
 
When giving this sermon, I am presuming that many have not quite appreciated these aspects. Well, that's were I may be wrong. For those, I would suggest a reading of this blog (my opening post in this blog) to check where they see themselves. 
 
Since these exchanges are generic in nature pertaining to the whole subject of professionalisation (which I consider synonimous with "privatisation"), I thought I'll post it all here. 
 
Muralidhar Rao
abidpqa's picture

Everybody has to obey rules,

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Everybody has to obey rules, propreitor or corporate. There is no will on part of govt and police to control unorganized sector because of conflict of interest and illegal monetary influences. Also these methods can be used by big corporates.  The illegal methods have to be opposed whoever is doing it.

The solution of inviting big corporates may not work because of core competency. I doubt whether the theory is right but a manufacturer need not be interested in running bus service. Boeing does not run airlines or is at least not a major player. Indian coroprates are running many divisions because of lack of competition also many are run just by financial control.

murali772's picture

state Socialism the culprit

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The greater danger in India is not crony capitalism, but "the corruption and incompetence born of state socialism"

For the full text of the column captioned "Why India is a Socialist loser" by Dr David Frawley in DailyO, click here.

Says it all - certainly worth a read.

Muralidhar Rao
kbsyed61's picture

Murali, Certainly

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Murali,

Certainly privatization is not a dirty word if the private enterprise behaves so. I agree with you that it si time govt exits areas that private players are allowed to service. Govt should relegate to the role of facilitator, regulator and enforcer.

Unfortunately the small experiments done across India including Guajrat, Delhi doesn't augur well for it. Promoting just Adanis and Ambanis is not the way.

Crony Capitalism seems to be the new avatar of corruption by the state. Instead of allowing the loot after coming to power, now it is financing before the elections is new method of corruption.

The impression is given that India Inc is the savior of Indian economy and they are the panacea for all the economic ills perceived to be due to socialist schemes.

Two simple facts. Every economist, of all hues and would agree that GST would help GDP by at least 1.5-2% increase. Guess who hasn't spoken for it? India Inc. Even the voices here and are so low that you can hardly hear.

The India Inc owes about Rs 3,00,611 crore in loans to the Banks both public and private Banks. The fact is India Inc loves protectionism,corruption, dole outs (mines) and present taxation. Who will pay back these loans?

Who will pay the loans of Kingfisher Airline?

murali772's picture

failure of the govt in its assigned role

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Syed - All of it comes out of the state's failure to play its assigned role of the facilitator, regulator, and controller (where essential), effectively, since they are caught up with making a mess of everything in their role as the player. If they get out of it, and concentrate on the job they are required to do, everything will fall in place.

I don't know where you got this bit about India Inc being against GST. Mr Gurcharan Das, arguably the most vocal spokesperson of India Inc, is seen almost every evening on TV, crying hoarse to get the bill passed.

Muralidhar Rao
kbsyed61's picture

When fraud is abetted by Private Enterprise?

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Murali,

These are the reports that makes public lose the confidence in private enterprise. 

http://timesofindia.indiatimes.com/city/delhi/Discoms-inflated-dues-by-Rs-8000-crore-CAG/articleshow/48520042.cms?

"...The three private power distribution companies (discoms) in the capital inflated their dues to be recovered from consumers by almost Rs 8,000 crore, the comptroller and auditor general has said in its report on the discoms and claimed that there is scope for reducing tariffs in the city..."

murali772's picture

alibi's for AAP sarkar's vote bank politics

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Syedbhai - What I would like to say is that CAG doesn't understand business (check my response here). One would expect Prajagalu to not provide alibi's for the vote bank politics of the AAP government.

Muralidhar Rao
murali772's picture

socialistic legacy

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Here's a financial tip no one gives you. If you owe money to the banks, make sure the amount is huge. Then you won't need to worry about paying it back on time. Or, indeed, in some cases, paying it back at all.

This is not a joke. Several top business houses in India owe banks astronomical amounts and have defaulted in repayment. But instead of facing pressure to pay back these loans, companies are routinely given sweet deals: either their loans are 'restructured' in a way that allows a moratorium on interest payments, or their repayment schedule is extended generously.


For the full text of the report in CatchNews, click here.

The immediate reaction of those socialistically inclined will be to say "I told you so" that this is what will happen if we stray from the socialistic path prescribed in our Constitution. Of course, they'll not bother to add that the founding fathers had chosen not to include the s-word after a lot of deliberations, and that it was, under the dreaded emergency regime of Indira Gandhi, surreptitiously brought in.

Now, if you go deeper into where the problem lies, it becomes obvious that this is all plainly the legacy of the Socialistic path that the Congress governments have been following all these years, which the NDA governments, in their brief tenures, have been finding difficult to reverse. All of the huge debts, in the books of the defaulter companies, are borne by the public sector banks, resulting out of their poor management practices, where ministers dictate terms, rather than the board.

Also, all of these defaulting companies are in infrstructure sectors, largey under the control of government agencies, where financial indiscipline is the rule rather than the exception. For instance, one of the defaulting companies, viz LANCO (rather, the group company - Udupi Power Corporation Ltd), is a supplier of power to Karnataka government-owned ESCOMS. Now, the ESCOMS together owe the state supplier company, viz KPCL, around Rs 11,500 cr any given day (for its annual billing of Rs 6500 cr), they in turn being denied close to Rs 6500 cr by the government, against farmer subsidy account. This being the case, Udupi Power Corporation has to carry on a cat and mouse game with the government in order to get its money and remain in business, all of which is besides leading to poor quality of power supply in the state. This is typical of the kind of problems the players are facing across all of these sectors.

Yes, this is a difficult game, requiring a special 'technology', which essentially needs a 'crony capitalist' mind-set to acquire, and consequently, the more reputed companies are loathe to get into it. What is happening in effect is easing of business climate for crony capitalists, and simultaneous hardening of it for genuine entrepreneurs. And, these being key infrastructure areas, on whose performance the country's economy is hugely dependent, the exclusion of good players is causing to further exacerbate the problem.

Mr Piyush Goyal is working hard to correct the anomaly through programmes like UDAY (check here for more). And, once the anomalies are corrected, the very same companies who are today viewed as crony capitalists, can learn to play by the rules, leading to healthy competition to the benefit of everyone concerned. But, governments, like ours in Karnataka, are behaving like the proverbial horses that refuse to drink even after they are taken to the water. Apparently, all they want is to just perpetuate crony capitalism, since that's what suits the vested interests of the powers that be best. So, it's going to be quite a long haul.

A pointer to the answer perhaps lies here. And, in pursuit of that, this demand needs to be raised by the pubic at large.

Muralidhar Rao
murali772's picture

if privatisation is an issue, there are options

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The Government of India is the largest business house—it dominates banking, makes scooters, steel, chemicals, fertilisers, and explores and markets petroleum products and even runs hotels. By definition, erosion in the value of state-owned companies translates into a fall in the wealth of citizens.

It would be seductive to argue that much of the rot in the public sector is about ownership. The truth is not so linear. There are failures and there are illustrative instances of successes—for example, in Singapore, Germany, France, Sweden, the Netherlands and South Korea. The Modi Sarkar may want to look up the seminal work of Mariana Mazzucato and Ha Joon Chang on the entrepreneurial state.

The cause of rot in India is mostly about the quality of management—or if you please, political management. PM Narendra Modi does not subscribe to the idea of privatisation. The rationale is political—about transfer of public wealth to private individuals, about creation of oligarchs. But why persist with political management, and perpetuate sloth that erodes public wealth? Why not get the sarkar out and shift PSUs to a sovereign platform to institute professional management and promote growth?


For the full text (emphasis added by me) of the highly readable column by the redoubtable Mr Shankkar Aiyar, in the New Indian Express, click here.

So, if privatisation is an issue, can we then possibly have our own version of Temasek (meaning professional management), at least? Failing the switch to either of these options, can the country continue to shoulder the enormous non-performing burden that our PSU's have largely become?

Muralidhar Rao
murali772's picture

re-defining the government role

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Several ministers from both sides of aisle have spoken about how it was the absence of government controls that allowed this (IT) industry to grow at an accelerated pace. This has been voiced by ministers in the previous government and in this one. It's now an accepted wisdom.

But on the role of the government, I would say, we have to move away from the current method of control to a different method of regulation. In developed societies, there's strong regulation but there's no stifling of businesses due to excessive controls. Anybody who violates any law is punished heavily. That is required. But until one is proven guilty, the others should be allowed to conduct their business effectively.


For the full text of the interview of Sri Narayana Murthy, in the ToI, click here.

Well said, Sir. If the government reduces its role to facilitation, regulation, and control (where essential), even the non-IT industries in the country will flourish as much as the IT sector has, given the innate entrepreneurship of our counrtymen. Let's all join Mr Murthy in raising the demand for that of our governments.

Muralidhar Rao
murali772's picture

Pitfalls of pursuing the Uber route

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While I have been a great supporter of the Uber model of cab services, I must compliment "The Guardian" columnist, Mr Evgeny Morozov, for bringing out certain pitfalls of pursuing that route (click here to read the full column - definitely worth a read), though of course in true "Guardian style" (with its characteristic tinge of Socialism).

Now, ZipGo (check here), Shuttl, etc, that have come up in Indian cities, are the equivalent of "Kutsuplus" (of Helsinki), talked about in the essay. But, unlike Kutsuplus, the Indian versions are supported by venture capital, as much as Uber, Ola and the like, and consequently, are better positioned to take on the competition. Further, unlike in the case of Kutsuplus, where the competition was against Uber, the opposition here (not competition) is from the state Transport ministry - led mafia confederation, whose vested interests these 'upstarts' now purport to undermine. And, all of this is going on in the name of protecting the revenue interests of the monopoly government-run bus transport service providers, like BMTC, KSRTC, in Karnataka, which, because of their inherent inefficiency, is leading to the people having to resort to extensive use personalised forms of transport, causing serious cluttering of roads, apart from pollution and other issues.

So, in India, at least, the advent of all of these cannot but be most welcome. Besides, with our huge numbers, and the innate entrepreneural spirit of the people, competition will be stiff, and no one will be able to monoploise any show, whatsoever the game. Yes, to ensure a level playing field to all the players, in all of the relevant modes involved, as also for taking care of safety and such aspects, what's required, and urgently too, is a properly empowered regulatory mechanism.

What these are doing essentially is bringing the existing unorganised sector players into the organised sector fold, thereby providing for greater accountability, apart from large accruals of service tax to the government kitty.

Now, however, all of the above serve largely the "khaas aadmi". These models may not work well where services for the "aam aadmi" are concerned. Here, I'd like to recommend the Delhi DISCOM type model (check here), where the private player (selected through a laid down process), who manages the operations, holds 51% equity, and the local government holds 49% equity. The tariff levels (fares, in the case of bus services) are decided providing for 8% return on equity (if I understand correctly), and, with enough representation on board, in addition to oversight by the regulator, an affordable and efficient service, which also sustains the interest of the private player, has been in place for close to a decade now. Once matured, the government holding could even be lowered to 26%, without sacrificing much of a say in the overall policy matters. This model, or variations thereof, could fit most utility services, I'd like to believe.

All in all, if these few pitfalls are adequately addressed, which in itself is no big deal, we can have far better services, covering all of the various segmental needs, than we have presently.

Also, when it's an acknowledged fact that government agencies are the least efficient when providing services, particularly when they are monopolies, isn't it best that governments confine themselves to facilitating, regulating, and controlling (where essential) - essentially governing - rather than playing the role of service providers?

Muralidhar Rao
murali772's picture

Cronyism led to populism led to Socialism; time for change

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When the Karnataka and Delhi state governments recently “banned” surge pricing by taxi aggregators like Ola and Uber, they were entirely in sync with India’s long cherished tradition of populist measures against market forces. That it didn’t solve the problem of inadequate public transport – in fact, compounded it by inhibiting the supply of more taxis at peak hours, albeit at higher prices – was almost beside the point

- - - Cronyism in India is not just limited to national mega-scams, but is part of the everyday experience of the average citizen. Even in remote villages, every Indian is familiar with the favoured contractor or tout grabbing the lion’s share of the benefits of ostensibly market transactions, to the public’s detriment. It is these distortions that are erroneously but widely perceived as free markets.

- - - Markets allocate scarce resources efficiently, if not equitably, by reconciling supply and demand through the price mechanism. Tampering with prices destroys that efficiency. The way to rectify inequities is not by interfering in markets and blocking prices, but by targeted subsidies for the underprivileged.

Thus, for instance, rent assistance for the poor is a much better idea than rent control. But that requires funds to be allocated, whereas some politicians still believe they can get away by promising a free lunch. However, besides taxation, funds can also be availed by cross subsidising, for example levying a fee on airlines flying lucrative sectors and offering that as a subsidy to fly uneconomical routes.


Tinkering with prices is an easy source of magnanimity for politicians. But it mostly only succeeds in driving transactions underground, while having a decidedly deleterious effect on investment and economic growth. And it is exactly this kind of market interference that creates conditions for corruption to flourish.

For the full text (emphasis added is mine) of the brilliant blog by Mr Baijayant 'Jay' Panda, BJD Lok Sabha MP, in the ToI, click here.

Strangely, even Fadnavis-ji doesn't seem to get this right, going by his government's actions, seen here, even as his 'mentor' Jaitley-ji has come out openly in favour of opening up bus services to the private sector. Siddaramaiah-ji and Arvind Kejriwal-ji, Socialist-posturing masters that they are, their positionings are not surprising.

But, the fact of the matter is that we are all paying a huge price for it all.

Muralidhar Rao
murali772's picture

the big ticket test

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There is a need to ensure greater competition in the country in sectors such as public transport, railways and power distribution, which are dominated by the public sector, to ensure better products and services, according to Arun Jaitley, Finance Minister.

“Competition is at the heart of a market economy. Socialism, per se, is anti-competitive as it promotes state-owned monopolies and restrictions. That is never in the consumer interest. It is always competition which ensures that the best product and service wins,” he said while delivering a lecture on ‘Competition, Regulator and Growth’ at an event organised by the Competition Commission of India (CCI). “Competition creates innovation, efficiency, price competitiveness, greater choice and better quality of products and services and higher investment,” he said.


For the full text of the report (emphasis added by me) in The Hindu, click here.

All very fine - however, with utilities being largely under state government control, all that the Central government can do is to create the right kind of climate for their being opened up for competition. One hopes the state governments take the cue and move on it fast.

In certain sectors, like healthcare, education, and a few infrastructural areas, it may not be prudent to dispense with the services of government players, totally, even though the government's job should largely be limited to that of the facilitator, regulator, and controller (where essential).

The presence of a government player invariably creates a sloping field to its advantage, which, in a field like Civil aviation, is an anomaly, one could certainly do without. Privatisation of Air-india (check here, for more on that) thus will be the ultimate big ticket test for Modi sarkar if it cares to be seen as reformist, which will then send the right signals to the states too.

Muralidhar Rao
murali772's picture

where American capitalism may have gone wrong

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A friend forwarded this (click here to view) 1 1/2 hr video titled "Four Horsemen", largely on the distorted American economic scenario, as something that must be seen. Yes, it's definitely worth a watch.

My take-aways from it are as below:

1) The film is critical of the distortion of capitalism/ free-market-ism, as is practised in the USA today, though not of capitalism per se. Yes, "unbridled" capitalism has serious negative consequences, quite as listed by me at q, r and s in the opening post in this blog itself. And, that's why I have repeatedly been stressing that the government has a serious role to play - as the facilitator, regulator, and controller (where essential); but that, when it takes on the role of the player, in addition, apart from losing focus on this main job, it also tends to make the playing field un-level, setting in distortions therewith. Having said that, there are a few areas, like education, healthcare, and some infrastructural areas, where the government can have a direct role to play.

However, I would again like to stress that "Socialism" is not quite the answer to the problems with capitalism. It was not for no reason that the founding fathers of the Indian Constitution rejected it, after days of involved debate.

2) Apparently, the US monetary system based on "FIAT", as different from the earlier 'gold' base, is the cause of a lot of the distortions there. Perhaps, that needs to be corrected.

3) The control of the business/ politician lobby over the "Fed", leading to lowering of lending rates artificially - well, in India, we have a Raghuram Rajan who has been criticised for not allowing exactly that. Hopefully, his term will get extended. Even otherwise, there's a fairly strong constituency in the country advocating continuance of his type of regulation. We'll bank on that.

4) The protagonists in the film say that capitalism was supposed to reduce government size; but, in the US, apparently, the government has bloated - yes, a distortion.

5) Income disparities - this is a problem that's more pronounced in India, than perhaps in the US or anywhere.

Now, before Mr Vishal Sikka was chosen as the CEO of Infosys, the salary levels in the higher management categories, were well below the global market levels, and the company was fast losing talent, market share and market capitalisation, alongwith. The Board realised the problem, and picked Mr Sikka at a much higher salary level than the previous CEO was being paid, and, following that, there was a dramatic improvement in the overall results. The salary levels for the upper crust have gone up even higher since, even as the overall performance has been sustained too. So, what can be done about this? Plainly, ther's no easy answer.

But, quite as I had stated elsewhere, as also seen towards the end of the TedX talk (acessible here - more or less on the same theme), quite a few from amongst the upper crest, go on to make over a large part of their wealth to philanthrophic organisations, for promotion of social entrepreneurships, and the like. Apart from all of that, quite like Mr Sam Pitroda had observed during an NDTV debate (aired last evening, where the audience comprised of MBA students from a premier institute), the country's youth are more and more shying away from assignments where they are helping to increase the wealth of the already wealthy, and getting into areas where they can contribute to the betterment of the lives of the have-nots.

As such, there's hope that our capitalism is not going the US way.

Muralidhar Rao

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