Saturday, December 6, 2014

A Road Map for Digital India

India's current policies for telecommunications don't serve our interests. Here's what must change

With all the talk about Digital India, one would think it's taking off. But in reality, it isn't quite here yet - because of our confused approach to independent networks, and regulations that restrict efficient use of spectrum and radio networks. Oddly enough, we don't suffer this confusion about sharing other infrastructure, such as roads, rail, electricity networks or airports. We readily share these on payment, as is logical, but we simply haven't done this for broadband and communications. It's unlikely we'll achieve ubiquitous digital access with our current approach. There are too many problems and too few synergies, requiring radical changes in direction.

Our legacy practices have resulted in several independent, countrywide networks like arterial systems, each run by its owner/operator. These systems connect at the customer ends on their own, except when customers are outside their franchise areas. This requires massive capital investment in a multiplicity of redundant backbone and urban networks with insufficient rural coverage, for a start.

Even worse, our administrative rules are far more constraining than the technological limitations. So operators must win their own spectrum at auction as in countries with (a) not many operators and (b) more commercially available spectrum, even as technology has evolved to facilitate shared network solutions.

This creates two further obstacles for Digital India: operators must invest large sums in spectrum auctions for their exclusive-use bands, and limited bandwidth - for instance, in the 900 MHz band - must be subdivided between numerous operators at a location, resulting in suboptimal performance.

The one proposed exception to the multiplicity of uncoordinated networks is the National Optical Fibre Network (NOFN) from state-owned Bharat Broadband Network Ltd. The plan is that this will reach clusters of villages at the gram panchayat level, and be available to all service providers; but it is very far from ready.1  The required changes must, therefore, address even basic assumptions, for example, whether operators must be restricted to circles; how to organise the infrastructure ownership, build-out and operation to facilitate countrywide access; how to compensate governments for usage rights, and network and spectrum owners for common-carrier access to their assets; how to structure incentives for content development and delivery for education, healthcare, civic services, commerce and entertainment and so on, as well as for domestic high-technology manufacturing. If this isn't done, the already high level of technology imports will rise to unsustainable levels, constraining not only this sector but the potential of most sectors of the economy.

Desirable Policies & Regulations

We need policies and regulations framed in our collective best interests on the following lines:
  1. Effective and efficient communications services at reasonable costs, paying reasonable taxes and government charges.
  2. Usage for government services, public safety and security, including the armed forces, paramilitary, governance, disaster management, and commercial and private purposes.

What Can Be Done

As explained above, our present approach is unlikely to get us there. So what can be done?

  • As a first step, one sweeping change can solve part of this seemingly intractable problem: permitting spectrum sharing between primary users, such as Defence and Defence-related services who will continue to have priority rights, and authorised secondary users, as under way in the United States and the European Union (EU).2  With this approach, critical defence and security applications are not compromised for government or commercial revenues. Instead, the spectrum would be more fully used, more traffic would generate higher earnings yielding greater revenue share and tax collections, while security retains the priority it deserves.

A prerequisite for this is a collaborative, end-to-end strategy and a problem-solving approach to formulating and executing policies, regulations and processes. The participants must include the central ministries and agencies (department of telecommunications, department of electronics and information technology, information and broadcasting, Defence, finance, the armed forces, security agencies); the regulator (Telecom Regulatory Authority of India); state governments; public sector units and their associated ministries/departments; operators. The judiciary and the public must also be involved, because disruptive actions, such as those leading to the arbitrary cancellation of some 2G licences, can be as damaging as dysfunctional policies or regulations.

  • The second major change required is to transition to open-access shared networks, available on payment to all licensed operators/service providers (excluding the ambit of Defence and security). It may be appropriate to have two, three or even four networks that are interconnected. This has to be worked out by the participants based on technology, economics, business interests and pragmatism in terms of what is achievable in given timeframes. The transition needs to be through consultation and negotiation, as it would not work well if imposed through government or judiciary diktat.
  • Simultaneously, trials must be conducted with new technologies, starting with wireless broadband utilising unused spectrum reserved for TV broadcasts ("TV white space"). Other countries have done much of the pioneering work. Scientists in the EU are recommending using TV white space for "super-Wifi" at the International Telecommunication Union's next World Radiocommunication Conference, instead of auctioning it.3

Our trials must validate solutions such as for rural broadband being workable in our situation and circumstances. These trials will need to be extended in phases, both in terms of scope and of scale - for example, for the active sharing of TV and other spectrum, and of Radio Access Networks, through rural and urban field trials. These will test usage by multiple operators in a given area. Once proven, policies and procedures can be developed and implemented across the country.

    Shyam (no space) Ponappa at gmail dot com

1. For problems with deploying the NOFN or fibre-to-the-curb, see: "Reality check on the broadband dream".

2. "Model City for demonstrating and evaluating advanced sharing technologies":



Without understanding the technology at work, have long believed spectrum should be a free flowing river that all operators can tap, getting billed for actual usage. Where the overall supply falls short, idle pockets, as with defence, should be identified and brought into use, apart from mandating a more efficient use by the telcos. Second, arbitrage should be a thing of the past. Each operator, through licence fees and usage charges, should pay the same price for the same nature of use, voice, data, etc. To complete the idyll, the government should be patient enough to receive its payments evenly rather than in lumpy, periodic bursts.

Friday, November 7, 2014

(Fixing) India's Systemic Flaws

We need breakthroughs in tax claims and coal and spectrum allocation, but most of all, in societal accord

On the face of it, several developments augur well for the economy. But major systemic flaws persist that must be overcome.

Some gains have resulted from Prime Minister Narendra Modi's direct selling and "heavy lifting", as in eliciting Japanese investments. Others, such as the drop in petroleum and commodity prices, are attributable to extraneous factors. The positive developments that seem to be coalescing into a glow on the economic horizon include:
  • The revival of stalled projects.
  • A reduction in raw material costs, with oil prices now well under $90 a barrel.
  • Significant investments from Japan's SoftBank in Snapdeal and Ola; other significant investments and announcements in e-commerce, for example, Flipkart and Amazon.
  • The implementation of electronic toll collection (ETC) on our highways. Introduced between Ahmedabad and Vadodara on National Highway 8 (NH-8) in 2013, the ETC became available last week between Delhi and Mumbai on NH-8. It is expected to be available on all national highways in the next two months. Vehicles with prepaid tags can drive through without slowing down, whereas until now, all vehicles had to stop to pay tolls. The productivity gains will be enormous, with fuel savings across toll stations estimated at Rs 60,000 crore (see BS, October 30, 2014 and BS, October 31, 2014 for details).

But all is not entirely well. The fiscal deficit is at 80 per cent of what was budgeted for the full year; there was a decline in projects completed in the September quarter; and there is uncertainty about growth rates.

The real issue, though, is that major systemic flaws persist, resulting in growing economic and operating constraints. There are the problems of retrospective tax claims, of coal allocation and of spectrum allocation. In the societal dimension, there are continuing indications of disharmony, resulting in wariness and insecurity about whether we have a unifying or divisive top leadership, let alone rank and file. Proceeding with business as usual with the present ineffective ways will lead to continuing and increasingly overwhelming detrimental effects. Each of these areas needs breakthroughs to achieve convergent, synergistic results.


Over 60 per cent of stalled projects tracked by the Performance Management Group in the Cabinet secretariat are power projects, held up because coal is not available. Coal-mining rights are to be auctioned on the lines of spectrum. What are the likely outcomes?

While the government was jubilant about funds collected from the auctions, this created enormous capital and operating constraints for the communications sector. This is because the Rs 1.05 lakh crore bid for spectrum became unavailable for network construction and operations, and the limited bandwidth available to each operator adds to costs and restricts delivery capability. Growth in network capacity has deteriorated to the point where we have higher levels of dropped calls in metros, with continuing poor broadband access countrywide. The effects on productivity are ruinous.

What can we expect from mining rights auctions? If the results are as for the spectrum auctions, we'll have high treasury collections, high life-cycle project costs affecting critical inputs like electricity, steel and aluminium, and a reduction in investment in mining operations and downstream manufacturing. These are logical outcomes: the consequence of higher costs is either higher prices, or financial under-recovery leading to collapse, and capital used for auctions is unavailable for investment. Instead, what we really want from the mining allocation is inexpensive electricity and efficient production of industrial materials, such as steel and aluminium.

The financial insolvency of our state electricity boards reflects the magnitude of the problem. Even the story of Gujarat's electricity distribution raises questions for the rest: Gujarat's average farm tariff is under Rs 1 a unit, compared with a non-farm tariff of Rs 4-5 (see "Farmers pay 56 paise per unit of electricity"*). The high cost of providing these connections is unviable with the low revenue of 56 paise a unit. This is why there is a backlog of about 400,000 farmers waiting for connections despite Gujarat's "surplus" of over 2,000 megawatts. Distributing electricity at such low rates is simply unsustainable, and the situation is much worse in states providing free electricity.

A possible way to approach this is to appoint two or three individuals with the integrity and competence to work with the government, industry and experts to develop an allocation plan. If this "beauty-parade" approach seems too utopian or academic for India, please be aware that this is precisely how land acquisition was actually done for the Calcutta Metro around 1982 after years of delay, and for part of the Bangalore Metro in 2006.


The spectrum constraints, meanwhile, show in the high levels of dropped calls because of congested lines, and the slow rollout of networks into rural areas. This slowness is because of the unfavourable economics: of high cost and difficult execution, with lower revenue potential. What we want from spectrum allocation is access to broadband networks at prices that will result in productivity gains. Instead, we have neither adequate broadband networks, nor sufficiently widespread access for productivity. A better solution is pooled networks with mandatory shared access on payment, with the government getting a share of revenues.


Apart from inadequate infrastructure, logistics, finance and regulations, all of which must be well-orchestrated to achieve supportive ecosystems for investment and operations, the tax-claims fallout continues to undermine growth prospects. While the Vodafone problem may be finally resolved, the closure of Nokia's manufacturing facility in Chennai because of tax claims undercuts all the sales talk. Each sector needs a supportive ecosystem, integrated with the rest.

Social Disharmony

Above all, social disharmony seriously affects our capacity for collective action. Social coherence is essential for constructive development. The leadership's effectiveness in reaching out and inspiring constructive aspirations can help to harmonise and channel citizens towards desirable common goals. Such collective initiatives would reduce our fractiousness and infighting, making win-win outcomes more possible.

The solutions in all these areas need to be path-breaking, based on integrity, trust and bold, collaborative action. We have to learn these ways.

                                                                              Shyam (nospace) Ponappa at gmail dot com


Comments (2):

  • karthikeyan
    Tax Havens can be created , for NOKIA alikes ?? :)
  • ashok
    The state of the power sector can make or break Make In India. Worthy of attention at the highest levels of government. 2. Whether spectrum or coal, the government can meet the industry half way by taking its entitlement as a revenue stream rather than an initial lump of capital.

Saturday, October 4, 2014

The Coal Allocation Opportunity - Moving Forward on Coal

Policies should facilitate the objectives of electricity at reasonable prices and of environmental mitigation, with integrity.
Shyam Ponappa  |  

The Supreme Court judgment on the allocation of coal mines raises a number of questions on all resource allocation and usage in India. Given the present state of our economy, society, living standards and productivity, and of our institutions, the need is for the government to frame a sound approach plan for resource use in the public interest. A number of issues need to be resolved. For instance, is radio frequency spectrum in this set, though it is not a depletable resource, such as coal or gas? If so, should the government's approach be the same for all of these, or different? If it should be different for any, what are the reasons, and how should it be different? Is there a different way to approach resources such as forests and timber, with the emphasis on long-term sustainability and desirability?

Solutions such as the reflex to auction everything focus on allocation itself as the "problem" to be "solved". In the case of coal, the problem is defined as the allocation of mining rights. Instead, shouldn't the objectives be to deliver electricity at reasonable prices for sustainable productivity and living standards? The implication is that policies and regulations must serve our needs for energy balanced with environmental mitigation, and not merely be an unexceptionable allocation policy for coal.

Coal-fired plants have high mitigation costs if they employ washeries, sorbents and low-emission boilers to improve efficiency and reduce pollutants, scrubbers for gases, treatment for effluents, and land reclamation and redevelopment. These costs are often glossed over in the coal-allocation debate. Realistically, coal will be the major fuel for electricity generation in India, as in America, for a long time. These costs need to be built in, and the equipment installed and processes adopted for optimal mitigation. Given the costs, the shortage of energy availability, and our polluted environment, if power producers also have to pay for winning auction bids for the right to mine coal, we simply cannot expect to achieve the divergent goals of low-cost energy for users, as well as high economic growth, together with environmental requirements. We must find ways to provide access to coal on reasonable terms, or more generally, to resources, including radio frequency spectrum.

Leaping Over A Chasm vs Trying to Walk Across

This is like leaping across a chasm; policymakers cannot take "incremental" steps over it. Changing the objectives brings into focus the desirable end-results, namely, low-cost energy, reduced emissions and effluents, and reclaiming land, as progressive companies have done. For example, Ambuja Cement is reputed to have effective mitigation and reclamation practices. In America, reclamation has various results: for example, a fish hatchery can be set up to use cold-water bodies in deep mining operations; or a wood-product undertaking can combine with major replanting to develop new and sustainable economic opportunities in the region. Other possibilities that could be explored here include measures such as washeries to reduce ash, and low-emission boilers to increase efficiency and reduce pollution.1

How can the government begin to act on this approach? By incorporating the following elements in a collaborative problem-solving initiative:

• The "honest, experienced administrator": if you don't know good, dedicated professionals among administrators and technocrats, consider these examples, where the details are omitted because of space and time constraints. For both the Calcutta (Kolkata) Metro and the Bangalore Metro, compensation for land acquisition was entrusted to one individual in each case, appointed by the political and administrative leadership. One was from the Indian Railways, the other from the Indian Administrative Service. There were no significant problems with either set of awards, and the projects were completed expeditiously.

 An element of revenue sharing, as in oil and gas production-sharing models, so that there are incentives for appropriate investment.

• One or more representatives of good-faith operators, depending on the level of contention in the sector, the principle being that there should be more if there is negative contention.

• One or more domain experts on efficiency, mitigation and reclamation .

• A problem-solver with legal expertise, who can identify and resolve outmoded regulations, and avoid problematic clauses to the extent possible.

• A financial expert who understands cash flows.

The charter: to frame policies that will facilitate sustainable least-cost electricity delivery together with desirable mitigation and reclamation. Integrity must drive the process and decisions.

These problems are not unique to India; concerns about underselling mining rights have been expressed in America as well, although the emphasis is more from perspectives of mitigation and reducing environmental damage, or improving the environment. For example, some reports assert that coal-leasing policies in Montana's Powder River Basin, which accounts for about 40 per cent of America's coal production, have been too generous because bidding is not sufficiently competitive. Others counter that the reason for limited competition is that only four large mining companies operate in the region, each in its preferred location. The economic compulsions of capital-intensive operations with the attendant heavy machinery and logistics needs induce mining companies to remain in an area where they have established operations.

Another criticism in America is of low-cost coal being exported to markets where higher prices prevail. In other words, taxpayers are subsidising companies. Additionally, there is the criticism of insufficient mitigation, and that environmental damage from emissions is considerably more than operators allow for. Advocates for auctions assume that the administration will remedy these using auction funds. In reality, funds are fungible and not often directed to specific purposes, unless there are explicit restrictions. More importantly, there's the contradiction in that users want lower-priced electricity despite higher operator costs, whereas the outcome is likely to be the opposite.

In principle, the judiciary needs to reconsider its approach to culpability in good-faith contracts, and retrospective penalties, because we can't afford this uncertainty about everything. The law can concentrate on transgressors, but the government, too, can change its approach, genuinely pursuing objectives in the public interest with openness and integrity.

                                           shyam [no space] ponappa at gmail dot com

1. See "Life Cycle Assessment of Coal-fired Power Production"
Pamela L. Spath, Margaret K. Mann, Dawn R. Kerr

Comments on BS web site

  • Atma Gandhi
    1. Sadly Energy is not properly priced in India and varipus consumers get it too cheap or free due to theft and metres malfunctioning. 2. Cost of enivronment damage do not figure at all in price of energy or products i.e. manufactirers just dump toxic waste into land or water channels. 3. Power sector must be mandated to install Coal Washeries and reclaim used Flyash and pursue people to use it in contrustion work/bricks casting etc. 4. A small section of people enjoy things at cheap prices while majority of polulation suffers by polluted water, air and land.
  • ashok
    The apex court laid down two broad principles for the disposal of natural resources - in its 2 G judgment - viz, all interested entities should stand on the same footing, no playing favourites, and secondly, the true value of the asset must accrue to the public exchequer, no arbitrage. Within these parameters, the government would be free to make refinements, mitigating pollution in the case of coal mining, for example. 2. The doctrine that the final price to the consumer can be lowered or kept reasonable by depressing the cost of a publicly owned raw material / input is far more problematic and prone to abuse. In the Indian milieu, better avoided.

Friday, September 5, 2014

Hard Changes for Better Times

It's time to work together for what we need.

As the government settles in amid signs that the economy's edging up, in approach would help us fare very much better. Our needs haven't changed: the assumption of law and order as a prerequisite, with a great deal more of basic infrastructure in the form of energy,and sanitation, transport, communications, and basic health and education services. Beyond these, there are the second-order infrastructure needs of healthcare, education, and financial systems and services. Together, these can facilitate productive and more comfortable living, making every day less of a battle.

However, merely wanting all these is not sufficient, as we know from experience. Good intentions aren't enough to solve problems, nor are public consultations. There are many mountains to be climbed, from individual aspects of discipline, education/skill development, and diligent application, to the collective aspects of organisation, collaboration, applied expertise across many domains, and access to reasonably priced capital. These are where institutional changes addressed seriously can help achieve our priority objectives.

What Must Change?

Attitudes: Contention vs. Solutions  A major weakness in our approach is the high level of dissonance in our society. Is it because of our unwillingness to accept that there's more to know than any one of us does, as individuals? We also seem to operate contentiously, rather than working out solutions that are acceptable to others as much as to ourselves. It's difficult to explain this unwillingness to consider with an open mind, or to accept our limitations. It's almost as though our without obligations extend to a tendency to hold opinions without the basis of supporting evidence, domain knowledge, or understanding. This is perhaps why all the good people and good works don't seem to add up - and, despite the many isolated, encapsulated efforts, our disjointed, uncoordinated society seems to border on chaos.

One part of the remedy requires changing our attitudes to the process of engagement itself, from contending against to actively seeking solutions among stakeholders, i.e., seeking resolution. We need to seek solutions and to resolve conflicts and trade-offs, which often have to be eclectic, and usually beyond any individual's capacity, and not to merely demolish other people's ideas. Above all, the effort has to be collaborative and not factional. A tall order, but perhaps worth pursuing.

(SOPs)  Another essential aspect of the remedy is adopting a systems approach with of due process followed as a protocol, like an algorithm, a problem-solving routine with a set sequence.

Discipline  A necessary adjunct is discipline as part of the process. This includes educating ourselves to the point of pursuing professionalism and developing respect for it, and for others' professionalism. For instance, suggestions of ideas to be implemented often evoke dismissive comments on why they won't work, or that other countries' experiences are irrelevant. We certainly have to script our own story, but we can definitely learn from others, just as we do in the arts, humanities or sciences. It doesn't matter whether it's from China or Germany, or Malaysia, Singapore, Japan, America, or the Scandinavian countries, or in formulating policies to encourage automobile manufacturing or mass transport, or in using coal or nuclear energy. These principles need to become habits of a collaborative problem-solving approach, of goal-oriented, disciplined SOPs that make for good project management. They are cradle-to-grave practices, to be worked into curricula and nurtured through school and beyond, in adult education.

Sequencing  There is sometimes confusion about the sequence in pursuing changes in policies and regulations. It's logical that objectives in the should shape policies, and these in turn should drive the processes of legislation, rules, regulations, and procedures in that order, with no ambiguity.

Weak Implementation  Our greatest weakness, of course, is in not implementing even reasonable laws and regulations. Going forward, however, this needs to change, and regulations need to be enforced despite the difficulties.

Public-Interest Objectives  The supremacy of objectives in the public interest seems unexceptionable, but if we consider issues like spectrum management, broadband policy, fuel pricing, or urban development, it's not obvious what the objectives are, or how public interest is served in the shaping of policies in these areas. Attempts to provide genuinely beneficial outcomes will be revolutionary in scope and scale.

The Government's Role

There are opposing ideas based on free-market or statist philosophies of whether markets should drive evolution in policies, or if governments should do so. In reality, free-market bastions have resorted to more intervention, as in the Strategy for American Innovation1 premised on building leading physical infrastructure and an advanced IT ecosystem, or the UK's broadband policies. Meanwhile, statists have moved to introduce more market-driven considerations. In India's case, we need to follow methods that serve the public interest without ambiguity, although establishing what that is may be a non-trivial exercise.

Government is certainly an important stakeholder and the ultimate arbiter of policies. More importantly, it can and must provide the leadership and sustained impetus in organising and coordinating stakeholder consultations to define objectives and facilitate convergence based on public-interest considerations. The private sector cannot ordinarily do this on a sustained basis even where markets are well developed. Even in such environments, it is arguably not the best course in the public interest. Because of our colonial legacy, a change in government attitudes to act as a co-participant will be difficult to effect, although it will be of tremendous consequence.

Experienced facilitators can help in converging interdisciplinary consultations to arrive at pragmatic decisions. Such expertise could greatly improve government consultations with other stakeholders. Equally, technical, financial, organisational, and administrative expertise and inputs are required to formulate practicable, viable solutions.

Initiatives such as the Planning Commission's India Backbone Implementation Network2 appear to have begun well, although some links on the web site are not maintained. Case studies on ecotourism3 and a garment manufacturing cluster4, among others, appear promising. Such initiatives need strong, sustained government support to not fall away as yet another "scheme" that has ended in isolation.

Shyam nospace Ponappa at gmail dot com
1: StrategyforAmericanInnovation; 

Friday, August 8, 2014

Transformation, or Drift?

We need transformative policies and incentives with purpose, especially in solar power and digital infrastructure.

Shyam Ponappa   |   

An uneasy sense of drift has set in after the anticipation that accompanied the swearing-in of the National Democratic Alliance government. Surely, the government understands that its real task is to build on hopes and expectations, to channel energies, to organise and coordinate for results, even perhaps try bipartisan teams? The opportunity is to overcome factionalism and harness people's energies, instead of floundering in disunity. We need transformative policies, programmes and with purpose.

Resolute efforts in specific sectors can change this sense of the same old same-old. Two aspects of infrastructure that need early attention are: first, solar power, and second,(see "A great start by Modi government", June 5, Business Standard).

Solar power, critically important in its own right, is essential for digital infrastructure because of the poor grid supply. Disappointingly, the steps taken are more of the same. For instance, the renewal of the national solar mission. for an increased 1,500 megawatts, is on the same lines as before - that is, a 30 per cent subsidy for solar farms, accelerated depreciation and (RECs) that provide subsidies for a fixed period. While the target is higher, it is minuscule compared to the potential, and relative to other energy sources. For distributed user installations, interest-free loans seem ineffectual, because the high prices are unchanged, although payable in instalments - hardly ground-breaking.

Could the government try a more radical incentive of zero tax on equipment in addition to a 30 per cent subsidy, with immediate reimbursement and stiff penalties for misuse? Lower capital costs would probably induce much more extensive deployment, spurring manufacturing and innovation through sheer volume. This is likely for solar farms as well, and these incentives could be made available if such farms are really desirable. The government would lose upfront taxes on equipment, but avoid the cost and complexities of the and accelerated depreciation, while gaining taxes downstream from increased productivity.

Similarly, in communications, we need countrywide access to broadband at reasonable prices. Users could benefit from applications such as education at all levels, from secondary school to college to continuing education for adults, healthcare; e-commerce; remote working/telecommuting; government services, information; and entertainment. Of course, once we have broadband, we'd need the range of useful, attractive content and services that result in improved user satisfaction, as well as productivity. These "supplementary effects" will undoubtedly take time to develop and play out, but the prerequisite is the access.

On this score, the much-awaited spectrum sharing recommendations are sorely disappointing. Their intent is puzzling because they are so restrictive, limiting sharing to two operators who have acquired frequencies in the same band in the same manner, with a cap of 50 per cent.

Build and Run Communications Networks Like Roads

Perhaps the telecom regulator's recommendations on spectrum sharing are an opening gambit to explore active network sharing. The logic for network and spectrum sharing is compelling. With India's self-created spectrum constraints and genuine deficiencies of capital and network coverage, the rational approach for our developing economy would be to optimise their use, as with roads. For this, active network sharing, including radio access networks and spectrum, is the most efficient solution, as is the case for roads.

Unfortunately, our policies are at the other extreme, of spectrum auctions and exclusive networks. This is least efficient for extending underdeveloped infrastructure services, as building and operating multiple exclusive networks requires the most resources, including capital. Auctions may be a reasonable alternative where there's existing infrastructure, and the issue is of allocating resources to whoever can make the best use of them. In our situation and given our needs, the way we build and operate roads may be a better alternative to achieve coverage.

To see why, compare the contrasting approaches of building communications networks with highways and roads. Road developers not only don't have to pay auction fees for the right to build roads, they are paid periodically for the construction of the assets. Ownership of the assets is then transferred to the state or other agency, and all road tax and toll payers may use the facilities. Similarly, all licensed operators could have access to communications networks on payment. While payback periods are often longer for roads, the nature of the financial flows are the same: capital must be invested in building the network before revenues are generated from users. People need to be informed and educated about this inescapable process.

Sparsely populated rural areas have lower revenue potential than urban areas. Hence, communications networks and services in rural areas lag because of commercial considerations. This deprivation is aggravated by front-loading auction fees for spectrum, which curtails investments in the networks and services in areas with lower potential. Also, unless operators pool resources, exclusive usage militates against full utilisation of the infrastructure. Our policies should reflect all this, instead of restricting spectrum access and sharing, including for 3G.

The real irony is that the pay-for-use principle is well accepted for roads; yet the opposite principle of auctions is used for communications networks. This is the unintended consequence of accepting auctions without thinking through what we need in our circumstances compared with advanced economies, and how to achieve those objectives.

Our spectrum policies have resulted in small bands of non-contiguous spectrum holdings that severely restrict capacity. Besides, operators have to invest heavily simply to protect the assets built. Yet countrywide broadband services need more spectrum to be used much more effectively to facilitate last-mile access. The kind of solution we need is for all remaining spectrum to be used for a common-access network, owned by a consortium of operators, including state-owned Bharat Sanchar Nigam and Mahanagar Telephone Nigam as "anchors". Once integrated with existing networks, operators can commercially deploy services with enhanced capacity, for which they pay as they use, and get paid. Broadband can be revolutionised by setting this up and converting spectrum fees to pure revenue sharing, as happened for mobile telephony with licence fees years ago. With the benefit of hindsight, the fees can be set low from the start, with regulatory oversight to avoid predatory pricing, and growth will most likely explode.

Shyam nospace Ponappa at gmail dot com

Sunday, July 6, 2014

Subsidies as Game-Changers

Incentives for alternatives to fossil fuels can help reshape our energy consumption

Oil and gas are our essential high-cost imports. Used in India primarily for transport, power generation, fertilisers and cooking, uncertainties in oil-producing countries contribute to our high inflation. Are there ways to reduce our dependence on fossil fuels through policy incentives?

Petroleum Use

Diesel comprises 44.3 per cent of petroleum products used by weight (see energy consumption chart). 

Energy Consumption  2012 (Click to enlarge)


Diesel is used primarily for transport, followed by lectricity generation. Cooking fuel is next, comprising LPG (9.9 per cent) and kerosene (4.9 per cent), amounting to 15 per cent of use. This is followed by petrol at about 10 per cent, mainly for transport. High ubsidies account for diesel’s preponderance in transport and electricity generation, as petrol is not subsidised. CNG also is used as automotive fuel, because of high subsidies and regulations (for buses and three-wheelers). Reduced subsidies could result in private users switching to petrol.

For transport, as well as for electricity generation, the policy could be to reduce subsidies for diesel and gas for private use, while providing good public transport services, with incentives for desirable use. For cooking, most urban dwellers in India use LPG, CNG or kerosene (see cooking fuels chart).

Cooking Fuels 2001-2011 (Click to enlarge)

Can the right incentives steer users, including the sizable number who use firewood, to energy sources that align with the objective of reducing consumption of fossil fuels? It will take some doing, but consider two supplements for LPG and kerosene: solar cookers; or, where these are unusable but electricity is available, induction cookers. If there are incentives for these alternatives to fossil fuels, there may well be significant benefits from reduced subsidies for LPG and kerosene; reduction in demand for imported fossil fuels; a greener carbon footprint, provided the manufacture of cookers is managed well; and a cleaner, healthier environment. Conversion from firewood and cow dung would not reduce subsidies, but would be beneficial in other ways.

LPG and kerosene subsidies for solar and induction cookers

One possibility is to use part of the LPG and kerosene subsidies to provide solar cookers. The kernel of the idea is given below.

The price of a solar cooker is about Rs 4,500. This is equivalent to the cost of five LPG cylinders at Rs 900 each, including subsidies. If you’re wondering how practical this is, cookers are available at this price, and we have one that works. Solar cooker prices will fall as volumes increase.

While the subsidies would finance solar cookers in the first year, from the second year about a third to half of the annual subsidies for every user would be reduced in perpetuity, assuming an average use of 10 cylinders annually.

This approach could be applied to all households that can use solar cookers — that is, those with space for a cooker, access to the sun, and an 
environment with some protection. About two-thirds of urban residents are LPG users — and, according to one source, half the total population uses 16.5 million tonnes of LPG annually.1 A guesstimate is that a third to half of these households could be persuaded to supplement their use of LPG with solar cookers. Less than 10 per cent of households use kerosene for cooking; some of these could also become users of solar cookers.

The chart for subsidies on LPG and kerosene from 2005 to 2012 shows them ending at a little over Rs 60,000 crore. After financing the cookers the first year, subsidies could be reduced by Rs 20,000-30,000 crore a year.

Subsidies on LPG & Kerosene  2005-2012 (Click to enlarge)


Where Solar Cookers Are Unusable: Induction Cookers (if electricity available)

If there is no access to sunlight but if electricity is available, an alternative for LPG users is induction cookers and ferro-magnetic vessels on similar terms (five cylinders = Rs 4,500) to supplement LPG. This would result in lower LPG use and subsidies, together with lower electricity use, as induction cookers are about 25 per cent more efficient than conventional electric stovetops.

Standby Diesel Generators

A major area for substituting diesel with solar power is backup generators, which are used widely to supplement our erratic electricity supply. There are several sectors where there is potential for replacing diesel generators with solar-powered inverters, provided substantial changes are made to tax policies to encourage the manufacture of such equipment to bring down prices, as well as to spread their acceptance as a preferred alternative to diesel generators. While parity between solar and conventional electricity prices in India is expected by 2017,2 the upfront capital cost of solar inverters deter their installation because they are exorbitantly priced — notwithstanding existing subsidies that are inadequate and laborious to claim.

Generators are widely used to provide primary or supplementary electricity supply to mobile phone towers. A year ago, generators for 585,000 towers used over five billion litres of diesel annually. If solar power were used, after the cost of initial installation recurring costs would be significantly lower, with no fuel costs over the life of the equipment and no local atmospheric pollution.

Likewise, many shops, commercial establishments and homes use diesel generators for backup electricity supply. These can be encouraged — even mandated — to adopt solar inverters where possible. Individual establishments could convert to off-grid solar inverters without any changes required in the grid. In areas such as markets and shopping clusters, organised efforts to provide local solar power would greatly facilitate the substitution, resulting in significant reductions in diesel use.

A transformation can come about only if there are systematic, end-to-end packages designed to encourage all of the above, applied consistently, that is, for supplementing cooking gas and kerosene with solar and induction cookers, and substituting solar inverters for diesel generators. The critical elements required are incentives, including tax cuts tailored to each market segment, making it attractive for users to switch. All this can be a prelude to changes to the grid, which would integrate large-scale solar plants that feed in power at a reasonable price.

Shyam Ponappa at gmail dot com



Atma Gandhi
1. Solar power installation, generation and uses must be mandated for government offices, hospitals, schools and bunglows. 2. Similarly Hotels, large Industrial building & office must be madated to use Solar power only for all non-production facilities. 3. Diesel subsidy should be stopped. Owners of public buses, or trucks and farmers can be given concession in insuarnce, road tax and direct cash tranfers to for 2-3 years mitigate immediate increases. 4.Better off houses should be pursuaded to install solar cookers and heaters and also use induction cookers. 5. Ledership msut address people and appeal to avoid over consmption and wastages.
03-07-2014 15:14:03

This would appear to be an idea whose time has almost come. Good quality governance to ensure that the subsidies are honestly delivered. No bogus windmill farms, please.
02-07-2014 23:36:55