MONOPOLIES ARE BAD, “COALGATE OR NOT”

Monopolistic behavior and the perseverance of monopolies are unfortunately getting a boost due to the activism by various constitutional authorities at this stage. Due to the mining issues in Karnataka private sector mines had to shut down and NMDC was given a mandate to increase production and supply. However it could not meet the targets and sufferers were steel companies. Similarly the “Coalgate” saga is likely to boost the monopoly of Coal India which has clearly been shown to be an inefficient company that has not been able to keep up with the production requirements of the country despite having a virtual monopoly and cash reserves of over USD 10 billion.

Unfortunately we as the Indian public have had to put up with state owned monopolies and their inefficient operations for a very long period of time. The worst of the monopolies were the state owned banks and Air India/ Indian Airlines. Their services were poor; they were least bothered about their customers and made no attempts to upgrade.

In case of state owned banks making deposits as well as taking loans was an arduous process. The branches were shabby and as a customer you were made to feel that a favor is being done to you if any service is provided. However all of this changed with the opening up of the economy and the entry of new generation private sector banks. Technology got upgraded, services improved. Making deposits and getting loans became easier and not a difficult task. This forced most public sector banks to improve their services and the way they operate. The good thing is that today a large number of PSU banks have come up to levels of technology and services which is near to the top Private Sector banks and but for government intervention with regards to directed lending could actually come up much more.

Air India was and continues to be the worst of the erstwhile Public Sector Monopolies. Taxpayers have had to bail out this entity several times and the current bailout has been to the magnitude of nearly Rs 40,000 Cr. With this kind of public money being pumped into Air India should it not be obligatory for the accounts to be made public on a quarterly basis so as to see whether there is some improvement in operations or it continues the way it was and as such the disbursal of bailout money should be stopped. I still remember that it used to cost me around double of the current advance rates to travel from Mumbai to Chandigarh. Prices fell and services improved after the entry of the new private sector players, offcourse some of them did not have good business models and tried to run operations via equity capital as has been the case with a lot of successful as well as failed e-commerce startups. However, unfortunately for them private equity would not touch them and lot of these airlines folded up. Now we seem to be reaching a stage where there are adequate number of players to survive and also where there can be a balance of customer needs and airline operatability.

ONGC was another monopoly which resulted in Indiabecoming more and more dependant on imports of crude oil. Despite the KG Basin, Rajasthan Block etc being available for it for years to explore it did not move aggressively to build production assets. As a cash surplus company it had enough opportunities to boost production prior to NELP auctions. It is true that it has been forced to share subsidies provided by the government on petroleum products, however even after that it had enough reserves. Instead of improving domestic production it choose to go abroad through OVL where its track record has been nothing to write home about even after pumping in huge amounts of money.

Not to miss the worst of the monopolies were the organizations like MTNL & BSNL. Again companies that were huge cash surplus at one point of time. These companies made absolutely no attempt to change with time. If they had their way India would still have manual exchanges and no broadband internet. Getting a phone connection in India till about a decade back was a task in itself. Call rates were 50 to100 times the current charges and more than that services were just not available. The entire telecom network continued to be in copper even when there was a big optical fiber deployment worldwide. The opening up of the sector to private players expanded the markets at a pace which has been a record globally and took services to new highs and Indian call rates to new lows. Irrespective of the 2G scam and related issues the telecom revolution in India has been huge. Going forward the state needs to restrict its rent seeking behavior if the public at large has to get cheap telecom services. This is clearly one revolution where the “have nots” of the society have benefitted equally if not more than the “haves” .

Ah, I was just about to miss the State Electricity Boards. It is true that political interference on tariff setting as well as free electricity political gimmicks have hurt these companies over a period of time. However these companies by themselves are inefficiently run. When they had a monopoly they neither expanded capacity adequately and nor did they invest in distribution and controlling losses in T&D as well as theft. Unfortunately most of Indiais still in the hands of state owned utilities in this sector. Transmission losses continue to be huge and interference in tariffs as well as free supply of electricity has made a number of these SEB’s virtually insolvent. Despite open access being mandated it is very difficult to bypass these electricity boards. As a result we still have huge power cuts all over the country. Even when electricity is available to buy and supply some of these SEB’s choose not to do so as the tariff recovery is lower than cost. The accumulated losses of these utilities has grown to unsustainable levels despite there being and independent regulator.

The 2G scam, coal mine allotment issues etc might have brought out issues of crony capitalism, unjust enrichment etc. however these issues should not hamper the opening up of sectors to the private players. Whether an auction is the best strategy or not is again questionable as we have seen that there have been instances of unreasonable bids in various sectors and then those companies find it difficult to fulfill their obligations. In case of the DelhiAirport I am not very sure whether there was any provision of imposing fees on passengers at the bidding stage. Since the winner was to be decided on maximum share to Airport Authority of India the winner was judged accordingly. However later on it became difficult to meet these obligations. Similar has been the case in the bidding of a number of BOT projects of NHAI and the Ultra Mega Power Projects.

Overall in conclusion I will just say that elimination of monopolies irrespective of the benefits to the private players has been net positive for the country and that is the direction in which we should move in the future.