The Scam nobody notices

One reason why India remains mired in poverty is that the political class gets worked up if anybody makes an excess profit of Rs 100 crore, but does not turn a hair if the public sector wastes Rs 100,000 crore. Nowhere is this clearer than in the latest ruckus over telecom licences.

Opposition parties accuse telecom minister Sukh Ram of favouring Himachal Futuristic Communications Ltd (HFCL) in awarding licences. What they fail to notice is that the most favoured entities are, in fact, the two public sector units currently running telephone operations–the department of telecommunications (DoT) and Mahanagar Telephone Nigam Ltd (MTNL). Private parties have bid an astronomical Rs 115,000 crore to be allowed a slice of the monopoly, which the public sector currently enjoys. But the public sector, itself, has not been asked to pay a single paisa in licence fees.

Why not? If it pays no fees, it should be able to reduce charges for its telephone services by Rs 115,000 crore. But no MP is demanding this, since we are so used to the idea that the public sector is entitled to loot the public through waste, callousness and corruption, with impunity. The new private sector entrants are confident of competing with the public sector even on this tilted playing field, because they say DoT and MTNLare so scandalously inefficient. How inefficient? The licence fees give us measure-Rs 115,000 crore over the next 15 years. And it must have been as high or higher in past years.

DoT and MTNL own huge chunks of valuable real estate in big cities, large telephone exchanges purchased at low historical prices, and an extensive line network. So their costs of operation should be far lower than those of the new private entrants. Yet they pay no fees, while new entrants pay huge sums.

For years DoT opposed private investment on any grounds it could think of. It argued that the public sector alone would be able to meet all demand for telephones by 1998. The intellectual Left joined this chorus, claiming that the waiting list for telephones showed that only a few lakh new phones were needed. You have to be pretty moronic to think that an official waiting list indicates unsatisfied demand, but the Left was up to the challenge. It had clearly never heard of disheartened customers not bothering to apply, or of competition expanding a market through improved services, equipment and marketing. Indeed, some Left writers suggested that private investors would not enter this field since there was no demand for phones and they would lose heavily if they made the large investments necessary. It was touching to hear the Left being so solicitous about possible losses by multinationals. In fact, of course, it was making a disguised appeal for continued public sector monopoly.

The huge bids made by multinationals now show how large is the pent-up demand for telecom. This, in turn, indicates how badly the economy has been crippled for decades by lack of telephone services. Telecom is vital for economic growth. It enables decision-makers to keep in touch with foreign markets (promoting exports) and the most backward regions (promoting industry and services in these areas). Public sector monopoly has strangled this vital infrastructure for decades, and prevented development of areas. By keeping out private investment, the country has been deprived of not only quality telecom, but of much greater income, employment and exports.

Some people argue that liberalisation has brought with it a surfeit of scams, and ask whether this is progress. True, the liberalisation is half-baked, and politicians remain intent on making money. True, libreralism implies transparent mechanisms without any scope for ministerial favours, and this we do not have. But even this flawed, half-baked liberalisation is far preferable to the old public sector monopoly. Kickbacks mean that a fraction of the new improvement is creamed off by politicians, but the balance still represents a clear social gain. A kickback transfers income from one pocket to another. But public sector waste prevents income from being generated at all.

I believe there should have been no capping in telecom bids, that\’ Himachal Futuristic should have forfeited its security deposits in the circles where it could not deliver the goods. But capping has saved it at most Rs 175 crore in security deposits. By contrast, the old DoT I monopoly has cost the country hundreds of thousands of crores. Bandits can loot only wealth which already exists. But public sector monopoly prevents wealth from being created at all, and so constitutes a much bigger loot.

In 1950, India was viewed as a potential economic power. Yet today it languishes with a per capita\’ income of $ 300 per year. Even-Thailand is six-times as rich. Forget about matching Korea or Singapore, if only we had kept pace with. Thailand, India would have beep-richer by Rs 5,000,000 crore.

To me, this is the biggest scam Q& all. Yet no MPs get worked up about this. Until they do, Indian cannot claim to have really reformed.

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