For decades, India had the most expensive power, the most expensive airfares and the most expensive telecom services in the world. Competition, even imperfect competition, has changed the dynamics of two of those sectors.
In telecom, voice tariffs are cheap and data tariffs are average to high, given trade-offs in terms of poor quality of service. Airfares are average. In power, India is among the most expensive environments, especially after accounting for the cost of alternative back-up systems, stabilisers to manage fluctuation, and so on.
These are three very different sectors and the trajectory of liberalisation was different. Mobile telecom was privatised in 1996 in a process riddled with corruption. It had exorbitant charges and a structure in which caller and receiver pay. The Internet monopoly for the erstwhile Videsh Sanchar Nigam Limited (VSNL) also meant incredibly expensive and poor services.
The next stage of liberalisation, in 1999-2000, was just as murky in its details. But the Net was freed and a calling-party-pays regime came into force. It would take too long to enumerate the multitude of strange decisions in auctions, licensing, spectrum allocation and FDI-related regulations over the last 12 years. Suffice it to say there is competition of sorts and a user base of 850 million. Whatever the government does to sort out the utterly tangled situation, the latter statistic ensures that it risks serious political damage. This is a good thing — it makes it more likely that acceptable solutions will be found. Incidentally, the erstwhile monopolists – VSNL, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) – have steadily lost ground.
The power sector has seen lots of tinkering. Odisha and Delhi have tried privatisation. Franchising has also been tried. Most states have unbundled state boards and electricity regulatory commissions. At different times, many states have offered free power to farmers. All tariffs are based on cross-subsidisation with industrial consumers paying premiums. Power theft is endemic, so are fuel shortages and there’s deep resistance to open access. Most state power departments are bankrupt and running up yet more losses.
The aviation sector also saw multi-stage liberalisation. First, private airlines came in and, then, they were kicked out. Then they came in again. Airport privatisation also became an acceptable concept. FDI remains a black hole. There are losses across the sector on the ground at airports, as well as in private airlines. The state incumbent, Air India, is a white elephant that swallows impressively large sums.
It all leaves one wondering what the state learnt during those long decades when it ran monopolies. The commercial arms – MTNL, Air India, BSNL, multiple state electricity boards – have all been disasters, incapable of coping with a whiff of change in the environment. The regulatory and deregulatory processes have been even worse, with randomised flip-flops in policy compounding error upon error.
What is worse is that none of these sectors is actually “free”. They’re firmly weighed down by a multitude of strange controls. Their supposedly independent regulators are largely seen as government departments created to offer post-retirement benefits to senior civil servants. The government continues to be a commercial operator in each of these sectors, running a multitude of mainly loss-making businesses.
There are other sectors, which are, or were, even more tightly controlled. In each, liberalisation has revealed similar case studies of embedded, institutionalised incompetence. Take oil and natural gas, or coal, or steel, or even finance with its UTI. Patently, monopolies learn nothing. In each case, opening up has, however, meant some improvement and information pinpointing lacunae.
What is truly scary is an extrapolation from the known to the sectors of such strategic importance that they haven’t been decontrolled at all. Defence, space, agriculture and the railways fall into this category. Can one really leave known incompetents to continue in unsupervised charge of these vital areas?