India Unplugged

This is the time of the year when one makes wishes. A few weeks ago, I made two wishes and hoped that Prime Minister Atal Behari Vajpayee wo...

This is the time of the year when one makes wishes. A few weeks ago, I made two wishes and hoped that Prime Minister Atal Behari Vajpayee would act on them. Last week I made one more wish for the Prime Minister8217;s birthday and I shall now add two more for the New Year.

There is some evidence that growth and development have come to occupy centre-stage in the BJP-led government8217;s scheme of things. At the same time, the Central Government is also prone to bask in its glory. For example, the government is gloating over the huge pile of foreign exchange reserves over 100 billion. All governments since those depressing days of 1991 less than 1 billion are entitled to take credit for the accumulation of foreign exchange reserves. The most credit should, however, go to the government that made the dramatic policy changes that opened the doors for the influx of foreign exchange, and that was the P V Narasimha Rao government. Successor governments can only lay claim to staying on course and making incremental changes. In calender 2003, the increase in forex reserves has been about 21 billion, but there was no major policy initiative in 2003 to which the increase can be directly attributed. We can temper our jubilation by noting that, during the same period, China8217;s foreign exchange reserves increased by 100 billion! The next goal must be to match China8217;s achievements, and surpass China in some areas. That requires major policy initiatives, as dramatic and as fundamental as the initiatives that were taken in 1991.

INDIA SHINING?

India is shining, but it is not shining for all Indians. In fact, among young Indians with only a school education and/or rudimentary technical skills, there is a sense of bewilderment. How is India shining, but he cannot get a job? Or, how is India shining, but there is no power during most part of the day? India will shine for all Indians only when there is a continuous stream of job opportunities. The central issue is 8212; and I dare say the central issue at the next elections will be 8212; jobs. The key to jobs is investment.

There is no other country in the world 8212; save perhaps China 8212; that requires massive amounts of capital investment in core areas such as power, telecommunications, roads, ports etc. Let us look at the record of the last five years of amounts lent by financial institutions to businesses in the core sectors.

The figures speak for themselves. Lending to the power sector and the telecommunications sector has sharply declined since 2000-01. Lending is a measure of the investment in any sector. If lending is down, equity infusion into these sectors also must have declined. The opportunity cost of lack of investment 8212; especially the decline in job creation 8212; will be obvious to everyone. The main cause of the decline in investment in these two crucial sectors was the policy muddle that plagued the two sectors.

In the case of power, the muddle began with the policy of giving a guarantee and a counter guarantee to secure the payment of electricity charges by the State Electricity Board concerned to the Independent Power Producer IPP. The first counter-guarantee was approved by the Vajpayee government in favour of Dabhol Power Company on the last day of its 13-day government in May 1996. Until this day, the government has not been able to resolve the vexed question of putting in place a payment security mechanism. The government attempted to sell variations of the old escrow account model 8212; the latest version is an escrow account only for the loan portion 8212; but there were no takers. One by one the major foreign companies left India. The entire burden of adding to the total thermal generating capacity in the country has fallen on NTPC and on the inefficient State Electricity Boards. Successive Ministers of Power have contributed to the policy muddle. There was the thoughtless letter written by Rangarajan Kumaramangalam that, in my view, killed half a dozen projects in Madhya Pradesh. When Mr Suresh Prabhu seemed to have succeeded in selling his 8216;8216;reform-based8217;8217; package to the banks, he was sacked from the government. The present Minister is neither seen nor heard. The policy muddle continues, and government seems to have left it to the N K Singh committee to find a way out. In my view, unless there is in place a payment security mechanism, there is no way that investments will flow into power generations.

THE TELECOM TANGLE

The story is more or less the same in the case of telecommunications. The old National Telecom Policy NTP was amended and fine-tuned in 1999. NTP 8217;99 was a reasonably good policy although there were some grey areas. Government should have allowed it to work for at least five years before revisiting it. The three board categories of service providers 8212; cellular mobile, fixed and cable 8212; would have grown in their respective spheres. Any creases in the policy would have been ironed out by the market.

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Government muddied the wasters by introducing a new service called 8216;limited mobility8217;. It virtually commanded the regulatory authority to recommend the case for limited mobility, and the regulator obliged. All hell broke loose thereafter. The cellular mobile service providers and the basic telephony service providers have been at war with each other for over three years. Even while the ground was being laid for the last battle, government muddied the waters more by approving, and granting, unified licences. Successive Ministers have shown amazing insensitivity to the legal and economic issues involved in the controversy. When the crying baby landed on the lap of Mr Arun Shourie, he attacked the problem with his usual missionary zeal, but totally oblivious of the legal rights and obligations of the different players as well as of the government.

Mercifully, the parties seem to have called a truce. Mr Shourie, who was seen as a six-gun sharp shooter, seems to have realised that he should not be part of the battling troops but should be above the battle. If all goes well in the next few weeks, the telecommunication sector may have fought the last internecine war. The world8217;s major telecommunication companies may even return to India and bring with them fresh investments and new technology.

My two wishes for the New Year are that the government should immediately clean up the policy mess in Power and Telecommunications, and leave the two sectors alone for at least five years.

Write to pcexpressindia.com