The unmentionables
One of the major initiatives of this government is the introduction of a bankruptcy process that has taken in only the private sector so far. Why should governmentowned firms be left out? T N NINAN writes
One of the major reform initiatives of the outgoing government is the introduction of an effective bankruptcy process that — so far — has taken place in only the private sector. Why not subject governmentowned companies to the transparency and clear-cut decision-making of the same or a similar bankruptcy process? Handing over the matter to a judicial body like a tribunal, with all parties getting a fair hearing, can remove the political sting involved in such sensitive decisions — and also enforce some rationality. Once we are past this electoral season, during which all promises are presented as free lunches, could we bring such non-populist issues into focus? Like fixing the problems of the public sector? “Fix” as in: Let the good ones be, salvage the troubled ones with an approved programme that has finite budget limits, sell those that can’t be salvaged, and shut down the rest.
Among the prime candidates to be looked at is Bharat Sanchar Nigam Ltd (BSNL), which says its mission is to be the leading telecom service provider and the most admired telecom brand. Yet it has been losing revenue, market share, money and relevance. In five of the last seven years, it has lost ~7,000 crore or more, and will do so again this year. Its twin, Mahanagar Telephone Nigam Ltd (MTNL), operates in the most attractive markets of Delhi and Mumbai but has costs that are twice revenue, and lost nearly ~3,000 crore last year. BSNL last earned a profit 10 years ago, its revenue today is much less than it was then, and both companies are now unable to pay salaries. BSNL’s share of the telecom market is down to 10 per cent.
Consider the issue step by step. Can these companies be salvaged? In the bitterly competitive telecom market, a turnaround seems impossible. The next option is to sell both companies. But, like Air India, they might find no buyers. The only non-economic reason for not moving on to the final option (shutting down, like many private telecom players already have) is the very human one that BSNL has about 180,000 employees, and MTNL another 25,000. But a bailout for the employees would be cheaper than repeated bail-outs of the companies, and could take the form of a lump sum plus an annuity. The bill, even if steep, would be a bargain, considering what the government pumps into these companies. BSNL got ~7,500 crore two years ago. The latest proposal is for another ~14,000 crore (which the NITI Aayog sensibly opposes).
Bear in mind that the two companies have spectrum valued at several thousand crore rupees. In addition, BSNL is sitting on freehold land that was revalued a couple of years ago at ~70,000 crore. That is the value that can be unlocked if the employees are taken care of. Subjecting these companies to something like the bankruptcy process for the private sector would force the government to explain why it continues to pour money into these bottomless pits, in preference to the other options that it should logically consider.
No political party can address such issues at election time, and it is unrealistic to expect such hara-kiri (though the witless Rahul Gandhi seems to be committing it anyway). But is there any time at all when the elected government can deal with those issues that can’t be packaged as free lunches? So far Narendra Modi has carefully ducked all issues that involve trade-offs which may hit voters. Hence the patchy reform record on labour, trade, agriculture and other issues, which (you could argue) has resulted in the lack of economic momentum outside of manufactured statistics. Take the nationalised banks that have got sums approaching ~2 trillion as fresh capital from the government, but have seen much of that disappear in the market valuation metrics. We have seen “Recognition” of these banks’ problems, and we have got “Recapitalisation” (with more to come, doubtless), but what about the forgotten “R”: Reform? And reform of government-owned entities in their totality? Forget value creation, can we at least stop large-scale value destruction?