Ministerial M&As PDF Print E-mail
Wednesday, 21 May 2014 00:00
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There is a case for one energy ministry and an infra one which includes city-building, but who heads them is critical

Why do we have a separate ministry for roads and one for railways and another for civil aviation when they all deal with transport? Why not combine the oil and power ministries with coal since they all deal with energy? And given that agriculture and food are different sides of the same coin, why not merge them again—that way the Commission for Agricultural Costs and Prices (CACP) chief won’t get calls from the agriculture minister asking him to hike MSPs and another from the food minister asking to reduce them!

As happens each time a new government comes to power, the same questions are being raised once again. Indeed, with greater vigour as it is believed that since Narendra Modi doesn’t need to placate allies, he can afford to carry out complex M&As across ministries.

That Modi doesn’t need to accommodate fractious allies like Jayalalithaa and Mamata Banerjee does make his life easier, but it has to be kept in mind the NDA is a coalition of 20-plus allies. And let’s not forget the large number of fractious friends Modi has in the BJP who need to be placated—friends who have friends in the RSS, for instance.

There is certainly a case for merging ministries, indeed many were single entities in the past, but were just broken up to provide jobs for various allies over the years—in the case of agriculture and food, the split took place when Sharad Pawar wasn’t convinced about the workability of the Food Security Act, and wanted out. A combined energy ministry, for instance, will ensure that the entire sector is opened up to the private sector instead of, as present, private firms being allowed only in oil/gas exploration but not in coal.

But, as in the case of corporate M&As, merging ministries, desirable as it sounds on paper, isn’t going to be easy. For one, there are vested interests that are difficult to tackle—imagine how the bureaucracy will react if the number of secretary-level posts halve. Unscrambling an omelette would be easier than merging too many ministries.

The most important reason, though, and that is why Modi has delayed government formation, is to find the right person to man these ministries. A bad minister/bureaucrat for the power sector is bad enough, but if this duo is in charge of the energy ministry, it will play havoc with the petroleum sector as well as coal. Which is why, chances are, even though Modi is keen on larger ministries, he may just have to wait a while before doing this.

Indeed, one thing that the history of the UPA tells us is that it is not so much the number of ministries that matters as much as it the quality of decision-making, both at the level of the ministry as well as at the level of the Cabinet. Take petroleum. It took close to a year for the ministry to decide on a relatively simple matter of whether oil/gas concessions should be extended to allow firms to extract the oil/gas they found last year—as our front page story today says, the ministry has decided against it, a measure that will surely dishearten potential investors. Similarly, in the case of hiking gas prices, the decision had already been taken, but the ministry still made heavy weather of it and got the Election Commission to put it on hold.

Whether there is one energy ministry or separate silos of power, oil and coal, such decision-making is the real problem. In the case of the power ministry, despite the Electricity Act mandating competition, this has not happened so far. Indeed, if the decision never got taken at the level of the individual ministry, the Cabinet/Principal Secretary needed to prod them along—which is why both jobs will be critical in the new dispensation.

In such a situation, rather than looking at M&A deals, it is important to examine the structure that makes the ministry act in manner it does, and to look for possible solutions. Take the telecom ministry, perhaps the single-largest impediment to telecom in the past several years. The ministry was exposed very badly a few weeks ago when the TDSAT came down heavily on its attempt to crush 3G intra-circle roaming for almost 3 years. But even before that, the ministry took all manner of decisions that can only be described as inimical to the interests of the sector. Huge fines were levied when none were called for, not enough spectrum was released in the market for industry’s needs, 900MHz licenses were not automatically renewed, the list is a long one.

An independent regulator is often touted as the panacea in such situations. But as both the telecom and electricity example show, the cure can often be worse than the disease. In the power sector, you need look no further than the regulator in Delhi to see the gross dereliction of duty and the mess this has caused. By not raising tariffs in the time, the DERC has ensured power companies are owed R27,000 crore which, in turn, has meant that they cannot pay suppliers—the threat of a power blackout has been hanging over Delhi’s head for several months now.

In the case of the telecom sector, the original mess during A Raja’s tenure was caused by the Trai’s wishy-washy recommendations; in more recent times, the Trai recommendation to dramatically hike spectrum fees stalled the growth of the sector for almost two years; the recommendation on not allowing automatic renewal of 900Mz licenses has meant the sector will remain in trouble for many years to come.

In such a situation, rather than looking at merging ministries and other miracle cures, what needs to be seen is what can be done to ensure the bureaucracy doesn’t play either its own games or those of the minister. One way could be to ensure that any babu taking a decision gives a written rationale for doing so—the pros and cons of taking any decision. Indeed, a more active Parliament needs to quiz babus on specific decisions.

More important would be making public various milestones/targets set while taking certain decisions versus the actual achievements. When the aviation ministry made Air India buy $11 billion worth of aircraft, the consultant Deloitte described the turnaround plan as ‘ambitious’, ‘conceivable in principle’ and requiring ‘massive reorientation efforts’—the market share envisaged in the plan for AI assumed competing airlines, which are beating the pants off AI, will grow at 10% annually as compared to Air India’s 22%! It would be interesting to know how much of this has been achieved. This is what should guide further decision-making, for future bailouts for the airline.

Similarly, after one year of the electricity sector’s financial restructuring package—there have been several such packages in the past—how do the achievements compare against the goals? For it to be respected, decision-making has to be seen to be effective. That’s what Modi needs to be worrying about.


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