Half-measures won't fix the economy PDF Print E-mail
Friday, 22 November 2019 03:50
AddThis Social Bookmark Button

Shobhana column


While the government seems eager to take measures to reboot the economy, the initiatives, in themselves, are not bold, game-changing, or even, as in the case of telecom, helpful. On the contrary, they seem half-hearted, as in the reworking of the Code on Industrial Relations Bill, 2019. Having talked of labour reforms for five years now, the government has done well to make it easier to allow industry to hire fixed-term employees, but little has been done to give industry a free hand to hire and fire easily.

At a time when no company is willing to add capacity, and if it is, it is more likely to use machines rather than labour, retrenchment rules should have been relaxed. Instead, the government has retained the threshold of 100 employees, above which companies will need to take prior approval from relevant authorities.

While a provision for changing the ‘number of employees’ through a notification has been added, industry is unlikely to be convinced. For one, the government keeps tweaking rules, and this doesn’t always help industry; how does industry know when the government will raise the threshold and to how much? If companies are to take on risks and invest large sums, they need to be reassured that the rules will be helpful, and will not change. In this instance, the government needed to have announced a higher threshold of at least 1,000. Also, rather than indicating it would support any flexibility in the labour laws offered by the state governments, it should have been more forthcoming, and amended the central law.

It is time the government stopped giving in to trade unions, and took a firm stance, whether on interest rates for small savings schemes, or the EPFO. Arun Jaitley’s promise of allowing people to move from EPFO to NPS, and from ESI to insurance has still not been met after all these years. Even when it came to divesting a stake in Air India, the deal didn’t take off because it was unwilling to retrench employees and allow AI to be merged with the acquiring airline.

Unless it lets go—it wanted a 26% stake till the IPO—and gives the acquirer a free hand, a deal is unlikely. In this context, the complete privatisation of BPCL, Concor, and SCI is a good idea.

More transactions where the government exits the business altogether or, even if it holds on to a small stake, relinquishes management control, are needed.

Selling big chunks of equity in PSUs to take its stake below 51% will fetch the government cash, but unless PSU managements are freed—from the 3Cs and L-1-itis—this achieves little.

Given that abnormally high government levies crippled telecom even before RJio came in with its ultra-low prices, and how the Rs 1.3 lakh crore AGR burden would have been much smaller had the government scrapped licence fee/SUC in 2010—when it started auctioning spectrum at market prices—it needed to ease the pain for the two older telcos that are still surviving. All that it did, however, was to give a two-year moratorium on the deferred spectrum dues—Rs 11,476 crore for Airtel, and Rs 23,920 crore for Vodafone Idea—when the two have to pay around Rs 92,500 crore on account of the Supreme Court’s AGR ruling.

Apart from the issue of whether the government should have stepped in to prevent RJio’s below-cost pricing, it needed to keep in mind that a Vodafone that is close to shutting down has, alone, invested close to $30 billion. Vodafone Idea now has a debt of Rs 120,000 crore, and doesn’t have the money to pay the AGR dues; if it becomes insolvent, this will also put thousands of people out of work. More important, after this, few MNCs would be willing to commit capital in India.

In fact, the government could turn out to be the bigger loser if Vodafone Idea shuts down as the telco owes the state over Rs 150,000 crore by way of AGR and deferred spectrum dues. Also, with several telcos shutting shop, one on the brink of shutting down, and another not doing as well as in the past, industry revenues and demand for spectrum could fall even more than they have over the past few years. Nick Read, the global CEO for Vodafone was not wrong when he told the UK’s Sunday Telegraph that the government needed to get its “boots off the industry’s neck”, and allow it to compete. Read may have taken back his comments, but global corporations will not forget them in a hurry.

For a government that was voted to power on the promise that it would rejuvenate industry and revive investment, the NDA’s is a sorry track record. Not only have investments altogether collapsed, there are few signs these will come back soon. Biased regulation, half-baked policies, and tax-terrorism cannot create confidence. Far from unleashing animal spirits, the government is killing them.


You are here  : Home Economy Half-measures won't fix the economy