Why is privatisation still a dirty word?

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.

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.

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.

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.

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

Everybody agrees with that.

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.

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.  

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.

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.

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.

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.

Closure of sick public sector units (PSUs) and privatisation of healthier ones that do not serve a public purpose have returned to the active policy agenda of the government. Surprising many sceptics, Cabinet has already approved the plans for the closure of nearly a dozen sick PSUs. Privatisation has not moved at a commensurate pace but it too has made progress with the Cabinet giving a go ahead on 20 PSUs. The government is also proceeding with the listing of currently unlisted PSUs in a time-bound manner.

For the full text of the column by Arvind Panagariya, Chairman, Niti Aayog, click here.

Finally, the government johnnies are no longer fighting shy of mouthing the P-word. One hopes the momentum picks up fast now - there's no time to lose. Privatising Air-India, over which also talk seems to be evolving, will be the real McCoy.