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Thursday, 17 July 2014 00:00
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Revival of PSUs has to be carefully thought out

Civil aviation minister Ashok Gajapathi Raju is probably right when he says that Air India is so out of shape, few would be interested in buying it. But while he goes around putting in fresh government equity to fund its losses—these totalled R18,439 crore in the last three years—he needs to take a call on whether Air India can make profits given the intensifying competition in the sector. While Kingfisher has gone bust, Jet is a much stronger competitor after the Etihad deal and global network; there is then the competition from Tata-SIA and Air Asia that needs to be factored in. In which case, after having spent R30,000 crore to revive the airline—this is what the government has promised to infuse—the government may well find that the lossess are as large a few years down the line. And surely, matters would change if potential suitors were told the Air India purchase would come along with R5,000 crore each year for the next 5 years, say? For good measure, some juicy bilaterals could be thrown in to sweeten the deal.

In the case of BSNL-MTNL, similarly, the huge employee costs and falling competitiveness are a fact that need to be kept in mind before promising to spend R40,000 crore to revive them over the next 5 years. MTNL’s losses have risen from R2,611 crore in FY10 to R5,321 crore in FY13, while BSNL’s from R1,823 crore to R7,884 crore in the same period. Not surprising, given MTNL’s mobile market share has fallen from 10.9% in March 2009 to 4.8% in May 2014 and BSNL’s from 14.9% to 11%. Two questions are critical for reviving both telcos. First, if wage costs are 103% of MTNL’s revenue, and 49% for BSNL, how is revenue to be raised to be able to bring this to the industry norm of 4-5%? Since this cannot be done, the only solution lies in dramatically compressing the workforce. Two, if data services are going to be the future of telephony, how equipped are the two PSUs to deliver on this? Though privatisation is the desired solution, should the government be unwilling to take bold steps, the other solution lies in sweating the PSUs’ assets. Given how just 64% of MTNL’s subscribers—and 60% for BSNL—are ‘active’, spectrum sharing deals should be encouraged to ensure a steady revenue stream; ditto for 3G services where, unlike most private sector players, the two PSUs have a complete all-India network. Similarly, the low number of subscribers implies significant lack of utilisation of telecom towers and BTSs. Once again, this implies both telcos need to work on identifying surplus assets and then finding users for them.

During the run-up to the elections, when journalists were trying to get Narendra Modi to comment on privatisation, he said that were such a decision to be required, it would be taken by a professional. The same applies to decisions on infusing government funds into these PSUs —so far, it appears the decisions are being taken on political considerations, not on the basis of concrete and realisable business plans. The R23,612 crore the government has spent on reviving PSUs so far, and the very limited success, should get the government thinking. If privatisation is the eventual solution, why delay it?


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