Public assets or perpetual burdens?

Prime Minister Manmohan Singh on Thursday said greater functional autonomy and independence from bureaucratic control will help public sector enterprises become more competitive. Speaking at the BRICS (Brazil, Russia, India, China and South Africa) Competition Conference here, the Prime Minister said that state owned units have enjoyed captive markets and have been, over the years, shielded from competition. “Going forward, our governments will have to increasingly adopt competition-neutral policies. Competitive neutrality requires that the government not use its legislative and fiscal powers to give undue advantage to its own businesses over the private sector,” he said during the conference themed ‘Competition enforcement in BRICS countries: Issues and Challenges. Emphasising on greater functional autonomy, he reportedly said that such companies should become increasingly competitive and not shy away from competition from other players. He conceded, “unfortunately, government ownership inevitably brings with it a bureaucratic style of decision-making and the end result is that the enterprise cannot compete in a market populated by equals.”

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

This is the statement by the Prime Minister of the very same government, the spokesman of which talked about imposing BSNl/ MTNL on babu's, in addition to Air-India, in just the past week. Can there be a bigger irony?

Apparently, there can be bigger ironies, since even as the above article talked of "greater functional autonomy" for PSU's, the following excerpts from an article in ToI (for the full report, click here), shows how the ministers in-charge are playing favorites, undemining the whole idea of autonomy:

Heavy industries minister Praful Patel and oil minister M Veerappa Moily have sought a year's extension beyond retirement for chief executives of two of India's largest enterprises under their wings — power equipment-maker Bhel and explorer ONGC, respectively. - - -The recommendations come at a time when the top management in Bhel and the public sector oil industry is going through succession process—from CEO to directors. The importance of the two companies can be judged from the fact that they account for procurement of material, services and equipment worth over Rs 55,000 crore a year. The Prime Minister's Office (PMO) has so far been steadfast in opposing the idea of granting extension beyond superannuation, both through UPA-1 and UPA-2. But the pressure from two powerful ministers in the Cabinet may sway the PMO's resolve and create precedence. If that happens, it would open floodgates for similar requests from other ministries and set off lobbying by chiefs of all PSUs.

Very clearly, autonomy for PSU's is a myth - they just can't be insulated from government interference. And consequently, the need for the government to disinvest from them.

I happened to watch "Buck Stops Here" programme (Chinks in India's Armour - click here to view it) on NDTV past week-end, where Lt Gen Malik (former chief of Army Staff) made a shocking revelation that our ordnance factories still manufacture World War-1 vintage compasses and binoculars, which is what our jawans have to depend on when faced with far better equipped Pakistani soldiers on our borders. And, one of the other panelists (a retired IAS officer) pointed out that there was no way out other than to privatise all of the ordnance factories, including the likes of BEML.

I can't agree more with him. We cannot continue to expose our valiant jawans this way any longer.

An aircraft with a landing gear that had malfunctioned repeatedly, a weather radar that conks off mid-air and an airconditioning that does not work properly takes to the skies every day from Chennai. No, this is not a fitness sortie of a vintage plane, but a daily Air India flight (AI 263) that ferries passengers on the Chennai-Bengaluru-Thiruvananthapuram-Male sector.

Although most airlines have discontinued this version of A320s and moved to newer builds, Air India flies this 26-year-old aircraft, which had three tyre bursts in the last one year. The plane causes regular delays resulting out of technical snags. Consequently, patronage of the Air India service along this popular route has also taken a hit.

As per the norms set by Airbus, the plane's manufacturer, an aircraft has to be either grounded or retrofitted after 60,000 flight hours or 25 years. Airlines often do not keep a plane for such a long time because of escalating maintenance cost. The average age of an aircraft used by airlines is less than seven years. Air India pilots say there are nine such A320 aircraft in service, but this could not be verified.

- - - Sources said pilots struggle mid-air as the plane's weather radar, which detects turbulence during monsoon, often malfunctions. The radar is crucial as during the rainy season in Kerala the aircraft has to fly in bad weather conditions on its way to Male.

For the full text of this report in the ToI, click here

And, below are the excerpts from another ToI report, just a few weeks back (for the full text, click here)

Air India's chief of flight safety was removed from his position on Friday for failing to keep flight data of all flights for a period of six months. The directorate general of civil aviation (DGCA), which approves the flight safety chiefs of all airlines, withdrew its approval for the AI official to occupy the position that was given this January.

The DGCA had sought data for all AI flights to Leh between May 23 and June 25 and its Bengaluru-Hyderabad flight (AI 513) of June 28. A passenger had complained about AI 513 having a hard touch down in Hyderabad and then taking off again. The airline reportedly did not give data for these flights due to which the regulator could not probe them.

"We had issued a show cause to AI flight safety chief, A S Soman, for failing to maintain 100% flight data records of all flights for a period of six months, as is required by the regulator. Soman in his reply blamed engineering for not keeping the data. We found his reply not satisfactory," a senior DGCA official said. Soman will, however, continue to remain in AI and has only been removed from the post for chief of flight safety.

- - - Flight data has to be kept for a period of six months so that airlines can analyze them to find how well their pilots are flying aircraft. Also, in case of a mishap the data becomes a critical tool to examine what may have gone wrong and lead to suggestions for safer flying in future.

Mr Soman will go onto the next posting. There's no sacking him ever, whether he performs there or not, too (Isn't that essentially why everyone hankers after a government job? - check here for more on that). The same goes for Mr Soman's successor too as "Chief of Flight Safety". Talk of safety is essentially a joke.

I have from long stopped patronising AI, even the odd times when they offer the cheapest fares.

Over 30 years after renowned musician Zubin Mehta and his troupe walked out of government-run Ashok Hotel on finding cockroaches in their rooms, Air India's senior most pilots have now revolted against the airline's decision to put them up at the ITDC hotel in Delhi.

The AI Executive Pilot Association (EPA) has complained that "Ashok Hotel has severe noise pollution and hygiene issues which render it unsuitable for cockpit crew use", and that it is "deficient from a fatigue mitigation perspective".

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

The biggest irony here is that it's the Air-India pilots, whose employers themselves have about the worst reputation in all aspects, who are complaining about quality issues pertaining to another government-run operation - talk of "the pot and the kettle". Very plainly, it's time the government got out of both.

While prime minister Narendra Modi is said to be keen to revive PSUs, he needs to be careful—Niti Aayog’s reported suggestion that sick PSUs be merged with profitable ones is borne out by, last week, the Cabinet approving National Buildings Construction Company’s takeover of Hindustan Steel Works Construction Ltd. The futility of saving an Air India is cited often—its losses of R27,000 crore over the last 5 years is more than the R22,000-odd crore infused into it—but finding a buyer for it was never going to be easy. Ditto for BSNL which, while making losses of over R35,000 crore over the last five years, has 2.2 lakh employees—but with wages equal to 45% of turnover as opposed to 5% for private telcos, no revival plan makes sense without dramatic surgery. With an 8.5% market share—and higher if you look at rural markets—BSNL may still have a strategic importance, but surely MTNL with a 0.34% market share won’t be missed by anyone? One basic rule for Modi’s plan to revive PSUs, then, has to be whether the PSU has any importance other than retaining jobs for the labour aristocracy—what relevance does a Hindustan Photofilms that made a R2,163 crore loss in FY15 even have today?

A second rule has to be the issue of whether it can ever be revived—MTNL’s employee costs are over 80% of turnover and its EBIT is not enough to cover even the interest costs on borrowings. According to the latest CAG report on central PSUs, 11 of the 34 listed firms also have an interest cover of less than 1; 67 of the 124 unlisted central PSUs have this dubious distinction. Indeed, 64 of the 157 loss-making PSUs—accumulated losses of R110,285 crore in FY15—have a negative net worth of R74,100 crore as against their equity of R21,847 crore. And while the government’s dividend from profitable PSUs was a healthy 12.7% of the amount invested in all PSUs, it is important to note the bulk of profits come from PSUs in areas where there is very little competition—if a Coal India or an ONGC had not got the best acreages or had more private competition, it is not certain their profits would be as high. The rule, therefore, has to be to infuse more competition in areas with PSU monopolies such as piped gas firm IGL. Other special dispensations for PSUs such as preferential sales to govt—27% of central PSU sales in FY15 were to government organisations according to CAG—also have to go. Apart from the fact that cash infusions of the type made in Air India and BSNL seriously distort the competition and mean there is little market discipline for PSUs—Air India can keep discounting and bankrupt the competition—the near-complete absence of any check on PSUs can also be seen from the fact that, according to the latest CAG report, 27 PSUs including the likes of BHEL and NTPC do not have the requisite number of independent directors and 16 including Coal India and GAIL have none at all. It is unlikely Niti Aayog’s blueprint on loss-making PSUs deals with any of these issues.

For the full text (emphasis added by me) of the editorial in the Financial Express, click here.

Very clearly, the only PSU's making profits are the ones who enjoy a monopoly. And, it's not as if these areas where the private sector will not or cannot come in. As such, the why of the Modi govt, one of whose oft-repeated mantra's was "less government, more governance", is persisting with them, is a mystery.

AirAsia group chief Tony Fernandes has said it is hard to do business in India due to protectionist policies and "vested interests", but his joint venture carrier AirAsia India was here for a long haul.

- - - "We (AirAsia) would love to go to many more Indian cities but Indian government is not giving us any more route rights at the moment. So, I think that is something the government has to look at.

"They (government) are very worried about Middle East and all it, they are trying to protect Air India, and I think that comes at a cost, at the cost tourism and jobs. So we will wait and see whether India (government) give us more rights. Right now, we have fully exploited all traffic rights and we cannot do any more," he added.

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

Fully government-owned Air-India's continuation as a player in the sector is plainly the cause of all the artificialities that prevail in the sector. This is precisely what I had meant when I stated "When they (government) become players in addition, their regulatory role gets badly compromised, as we have been seeing repeatedly, and the game gets totally distorted, leading thereof to its ill effects on the economy", in my opening post. And, we the tax payers and users of the services are paying for it in very many ways. Their continuation is becoming more and more unjustifiable.

Documents show that there are serious quality concerns at ordnance factories from the case of missing safety sleeves in artillery ammunition at the Central Ammunition Depot, Pulgaon, to 500 defective rifles being supplied from Rifle Factory , Ishapore. In three years, 429 types of defence equipment worth Rs 449.40 crore, including 52 types of ammunition and 162 kinds of weapons, were sent back over quality concerns.

For the full text of the report un the ToI, click here.

Enough has been said in my post of 7th Nov (scroll avove to read) quoting none less than Lt Gen Ved Malik. Haven't heard of any move from the concerned ministries in this regard since then. Are the concerned ministries concerned?