Dolphins die, sharks survive

WHY should the government privatise profit-making PSUs such as VSNL and MTNL, or quasi-PSUs such as Maruti Udyog? This is the Congress party’s latest plank to take on the government — and why not, since it continues to go down well with voters. Why, the argument goes, should a profitable PSU be sold, after all it’s not a burden on the state. The answer, and the scam, any Congress politician (re-invigorated by the ongoing plethora of workshops on this government’s corruption) will argue, is that big business houses such as the Ambanis and the Tatas want the profitable PSUs.

While it is never possible to give a character certificate to the government, any government, it’s important to keep a perspective. The fact is most PSUs, and that includes Maruti, have become less profitable after their monopoly status disappeared. And once this happens, thanks largely to government interference, few PSUs are able to turn around their business plans, to find new areas of profit. Logically, therefore, the sooner you sell off the PSU, the higher is the amount the government gets for the sale — selling VSNL a few years ago would obviously have got a better price than you’ll get now, when its monopoly rights over international calls are near over.

There’s a bit of a catch here. It’s not as if Maruti is worthless now, just because it’s in the red — its network of suppliers, dealers and workshops is worth a king’s ransom even today, and its sheer range of models makes it a winner in even the medium-term. Similarly, the fact that VSNL’s monopoly is near over doesn’t make it worthless — it has one of the best countrywide networks of telecom-cable, and that’s worth a fortune. In which case, it makes sense to ask, why is the market value of Maruti and VSNL plummeting?

And here’s another prediction that’ll complicate matters even more — the very day VSNL is sold, its share price will boom. Is it because would-be buyers of VSNL are hammering its shares so they can buy it cheap — and once they buy it, they’ll stop hammering the prices? Partly yes, but there’s a less sinister explanation as well — share prices will rise because investors know that the new owner will make every attempt to run VSNL (or Maruti, or whatever) instead of stifling it the way its current government-owners are.

Let’s take some real-life examples to breathe life into this argument. When Murasoli Maran was the industry minister, he kept delaying the introduction of new car models — so when other players stormed the market, Maruti’s marketshare went for a toss, as did its profits. Maran’s successor Manohar Joshi is not stopping new models, but was instrumental in preventing Maruti from dealing with the workers agitation swiftly, and also interferes with negotiations with dealers and vendors. Naturally, when, and if, Suzuki gets full control of Maruti, its valuation will soar.

Regular readers of this column are familiar with the details of how Telecom Minister Ram Vilas Paswan actively ensured that MTNL was not able to begin its cellular services for over a year (see this paper of July 15, 2000) — he tried to get MTNL to cancel the cellular tender, and when that failed, he ordered all manner of motivated inquiries into the actions of the then chief S. Rajagopalan and even tried to launch a phoney CBI investigation against him. Finally, when things became too blatant, MTNL was allowed to go ahead.

What followed is even more shocking, though I can’t say for certain as to whether it was deliberate or just plain bungling. MTNL was supposed to begin operation on August 15 last year, but began just a few months ago. All through the months the project was being commissioned, MTNL under its new boss N. Sharma didn’t show any urgency in procuring the sites where the base transmitters were to be located. As a result, even today, it has just 110 transmitters in Delhi while it was supposed to put up 147 — in Mumbai it has put up just 120 of the 149 it was supposed to. This results in a situation where large parts of the city still don’t get a signal. It gets worse. From the base transmitters, the signals are transmitted via microwave links — well, guess what, MTNL has tested only around a fourth of these links. Its billing system is just about getting into place, critical equipment like a network management system is still not there, and despite the fact that its marketing department’s calculations showed it would make a profit with very low tariffs, the tariffs were kept at higher levels — in the event, MTNL’s entry didn’t hit the incumbent players like Airtel and Essar, and MTNL has around just 15,000 subscribers against Airtel and Essar’s 1.2 million plus.

It will be argued that selling off the PSU is no solution — it makes more sense to restrain the Marans, the Joshis and the Paswans, to prevent them from messing with the PSUs. We’ve tried that for the last fifty years, but never managed to isolate PSUs from political interference. Selling PSUs to prevent their abuse seems such an obvious solution, it’s difficult to figure out why it remains an issue even today. It’s possible the PSUs will be sold cheap, and we have to use every means to guard against that, but at the end of the day, crony capitalism is better than no capitalism.

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