Policies & the Public Interest

The public interest calls for real reforms for equitable growth.

Shyam Ponappa    |    October 4, 2018

Everyone understands that users need high-speed broadband links for a countrywide transformation, through access to education, healthcare, and much else including opportunity. The lofty aspirations of the New Digital Communications Policy 2018 (NDCP) are 50 Mbps “to every citizen”, 5G, and so on, whereas the reality is a plan for two Wi-Fi hotspots per village. Surely, mere aspirational statements after inordinate delays cannot help attain high-speed “broadband for all”. Nor can a gutted market bereft of policies to induce the required capital for connectivity and network efficiencies. The NDCP epitomises overstatement juxtaposed with the realities of poor services. Key reforms have been consigned to a future imperfect limbo: reducing additional taxes (from an exorbitant 32 per cent), achieving more efficient spectrum use, and the like. Our needs are staggering, but what we have so far are statements of intent without real policy changes in the public interest.

A similar approach has played out in the manufacture of electronics and solar power. India’s mobile revolution depended entirely on imports of network equipment, software, and handsets.1 Likewise for solar power, India has relied on imports. Recent efforts to elicit interest in manufacturing solar equipment locally received lacklustre response, because of perceived inadequacies in policies and incentives.

The crux of the matter is how public interest, which many of our politicians, administrators and analysts claim as their motivation, is construed. An additional wrinkle is of being “pro-poor”. What does the “public interest” mean, and how does “pro-poor” fit in other than by perpetuating poverty? Some proponents regard the “aam aadmi” as being synonymous with the public interest, and others “the masses”, or “the poor”, or farmers. There is also segmentation by exclusion, such as “not those who own vehicles”. Exclusions also apply to manufacturing, such as cars or two-wheelers, because they add to pollution and congestion on roads. So also to air conditioners, refrigerators, and so on, perhaps from the confusion of conflating market principles with socialist ideas of “luxury goods” having a pejorative taint, whereas our need is for engines of growth, except in sin goods and services. In fact, the automotive sector provides a model for coordinated policies (except for fuel pricing).2

Our fuel pricing is puzzling, because while it affects the majority, it is treated as affecting only the affluent (many of whom are also likely to be very productive). Affluent consumers comprised around 27 per cent of India’s population in 2016, and may grow to 40 per cent by 2025.3 Constraining productivity and output is surely not beneficial except in containing imports, especially when productivity is declining (see Chart). Yet, this is the effect of high taxes on inputs. This is why there’s a genuine need for the evaluation of alternatives to demand compression and high taxes.

Labour Productivity in India - January 2010 to November 2017

Source: https://www.ceicdata.com/en/indicator/india/labour-productivity-growth

What, indeed, is the definition of public interest?  Here is a version:

It is the welfare or well-being of the general public, by which the whole society has a stake that warrants recognition, promotion and protection of the government and its agencies.

The overall public interest is about society as a whole, unalloyed by divisive or fractious special interests. It is not the welfare of any individual, group or company. In seeking to maximise overall welfare, however, there need to be trade-offs and selective regulations for justifiable subsets, such as the underprivileged, or in spatial planning for town and country, or sectoral regulations for energy, exports, or automotive products. Yet, while the criterion should be public welfare, the arguments we encounter are mostly for special interest groups. Rarely is there a consideration for the welfare of society as a whole.

How might a holistic approach to public interest alter the stance to policy making, administration, analysis and advocacy? Consider this example from Brazil after the global financial crisis of 2008.

Brazil suffered decreasing exports, lower investment, and a credit crunch with deleveraging, resulting in lower incomes and tax collections, and higher unemployment. The government’s response in 2008-09 was a selective reduction in taxes, together with increased liquidity, and reduced interest rates to the most affected sectors.4

These policy changes reduced a tax component, initially in the automotive sector for a quarter, later continued for about a year. This was extended to consumer durables/electrical appliances, and to building materials, the latter for about 15 months. For some products such as stoves and small washing machines, this tax was reduced to zero. Meanwhile, taxes on cigarettes were increased. The result was an increase in tax revenues from higher production and consumption, after an initial fall in tax collections.

Simulation is a useful way of evaluating alternative scenarios. Converted to cash flows, these inputs can be used to shape policies, because cash flows are an essential measure of reality.

A compelling reason for scenario planning is that coordinated policies could yield higher growth than foreign borrowings without systematic policy support. A policy framework with lower interest rates and good infrastructure (energy, logistics and communications) could accelerate growth, thereby attracting capital despite current account imbalances. Such alternatives deserve to be evaluated against the approach of higher interest rates to attract, then struggle to retain foreign capital (when there is a flight to quality, raising interest rates in emerging markets is usually ineffective), with lower growth.  Lower rates would also facilitate redeeming NPAs, as banks could profit from rising bond prices.

It is in the public interest to analyse alternative approaches, including input costs and taxes. Areas such as the allocation and management of coal, automotive fuel pricing and automotive manufacturing, and spectrum allocation and management need such analyses. In finance, the alternatives are of inflation targeting, taxes to reduce the fiscal deficit, high interest rates to attract/retain foreign capital, and managing imports, against scenarios with lower taxes, interest rates, and coordinated policies as in the automotive sector for manufacturing and logistics in sectors such as electronics and solar power equipment.

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Shyam Ponappa at gmail dot com

1: Sanjib Purohit, NCAER, March 14, 2018

2: http://www.siamindia.com/uploads/filemanager/47AUTOMOTIVEMISSIONPLAN.pdf

3: https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx

4: [Input-Output Matrix study of tax reductions-Brazil-2014]

Hard Changes for Better Times

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

Shyam Ponappa   |   

September 4, 2014

As the government settles in amid signs that the economy's edging up, fundamental changes 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,water 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 electoral rights 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.

Standard Operating Procedures (SOPs)  Another essential aspect of the remedy is adopting a systems approach with SOPs 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 public interest 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.

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Shyam nospace Ponappa at gmail dot com
1: http://www.whitehouse.gov/administration/eop/nec/ StrategyforAmericanInnovation; 
2: http://www.ibinmovement.in/; 
3: http://ibinmovement.in/wp-content/uploads/Cooperative_Tourism_Development_Project_Yes_Bank.pdf; 
4: http://www.ibinmovement.in/media-centre/case-studies/ogtc/

The 2G Supreme Court Judgment - 1

Time for a review The judgment cancelling 2G licences was based on demonstrably incorrect assumptions about auctions Shyam Ponappa / Mar 01, 2012 This first of two articles starts out with identifying the false premises of the judgment, particularly relating to the consequences of auctions.  The next article, to be published on Sunday, March 4, 2012, addresses erroneous technological assumptions, and explores possible ways forward. The Supreme Court judgment of February 2, 2012, cancelling 122 2G licences needs a detailed review. This is because it is based on faulty premises relating to economics, finance and technology. If the Supreme Court entertains review petitions on this judgment, it is imperative that the judges be aware of these false premises, and that they be correctly informed regarding these issues. This article gives a few instances of such errors and explores the logic of auctions.  Click here for Cloud Computing First, as an example of an error, the judgment states, “Spectrum has been internationally accepted as a … renewable natural resource which is susceptible to degradation in case of inefficient utilisation.” The fact is that spectrum is not renewable, nor is it degraded. Spectrum is completely unaffected by use, unlike the degradation of land or water through use. However, use of a particular range of frequencies in a given space and time can block another user’s effective access to the same spectrum in that space and time — hence the need for considering efficient societal use. Second, the judgment states that “the Government of India has already taken a decision to ... allot the same [spectrum] by auction”, quoting Telecom Minister Kapil Sibal. The fact is that the government had not announced such a policy decision before the judgment. Third, the judgment prescribes auctions as being in the public interest. Are they? The assumption that auctions are in the public interest warrants a detailed review. Amidst a cacophony of confused opinion based on little knowledge and less understanding, here is the evidence: a) Maximum public revenues: auctions or revenue share? Assume for a moment that public revenues are indeed the appropriate measure in the public interest. What does the evidence show? An estimate from the Telecom Regulatory Authority of India (TRAI) in 2005, of auction fees foregone after the transition to revenue-sharing, was Rs 19,314 crore from March 1999 to March 2007. In fact, actual revenue-share collections by March 2007 amounted to double that number, or Rs 40,000 crore. Further, the amount collected by March 2010 was Rs 80,000 crore. Sources: Auctions - TRAI, 2005: http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf Revenue Share: CAG, 2010:  http://www.performance.gov.in/sites/default/files/departments/telecom/CAG Report 2009-10.pdf Report No. 19 of 2010 - Performance Audit of Issue of Licences and Allocation of 2G Spectrum of Union Government, Ministry of Communications and Information Technology 16 November 2010 https://cag.gov.in/cag_old/content/report-no-19-2010-performance-audit-issue-licences-and-allocation-2g-spectrum-union These data demonstrate that over seven and 10 years, revenue-share collections far exceeded auction fees foregone. Over the entire life-cycle (20 years or more with extensions?), the revenue-share collections will overwhelm even the Comptroller and Auditor General’s (CAG’s) imaginary lost revenues. b) Public interest: revenues, or access and usage? What is really in the public interest — revenue collections or the benefits of usage? The CAG report and the clamour for auctions assume that revenue collections reflect the public interest. However, the draft National Telecom Policy 2011 (NTP-2011) states as its first objective: “Provide high quality, affordable and secure telecommunication services to all citizens.” It states that revenue generation will be secondary. In other words, the policy objective is to provide the benefits of accessible, affordable services to users, not to maximise revenues collected. This was the first time the government unequivocally stated an objective that appeared emphatically in the public interest. The Supreme Court has thus far seen it differently, although this has nothing to do with upholding the law. The confusion is made worse because the preponderance of literature is by “auction experts” focusing on high fees — and not at all on the services that should have followed but didn’t, because the capital went into the auctions instead of building service capability. A notable exception is a more balanced study of spectrum auctions worldwide that considers social gains as well as fees — which estimates social gains at an overwhelming 240:1 (“What really matters in spectrum allocation design”, Thomas W Hazlett and Roberto E Munoz, April 9, 2010: http://ideas.repec.org/p/reg/wpaper/372.html). https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1961225_code410506.pdf). c) Are auctions in the public interest? There was one successful auction in India in 2001 – because the market was dead – for a fourth mobile operator per circle. Other auctions in India and abroad resulted in the failure of network rollout and services, but were hailed as successes because of high auction fees. For cases of “operation successful, but patient dead”, read on. Auction failures US, 1994: The first US auction netted huge bids. Soon after, a number of “successful” bidders declared bankruptcy. This was repeated in the 1995-1996 “C”-Block auctions.   India, 1994: This auction in 1994 was followed by chaos from overbidding and default. The sector recovered only after many years, when the bids were set aside in favour of revenue-sharing with NTP-99. It took almost a decade before a reduction in revenue share (lower fees) and tariffs (calling party pays) led to explosive growth in mobile telephony from mid-2003.   UK, 2000/European Union, 2001 (3G): Considered a spectacular success, netting about $35 billion in the UK, followed by high bids in Austria, Germany and Italy that netted over $100 billion, these auctions raised about ten times the amount expected. The markets collapsed thereafter, and the bidders couldn’t service the debts incurred. Companies have taken a decade to recover, moving cautiously even now on 4G.   India, 2010 (3G and broadband wireless access): Hailed as a success, with over Rs 1,00,000 crore bid, lacklustre performance has followed, as companies struggle with the “winner’s curse” of paying too much to corner spectrum. Auction experts have written disparagingly of “failures” (low fees) in countries like the Netherlands, Switzerland, Sweden, and non-auction countries like South Korea, Japan and Finland (until 2009). However, these disparaged countries have the best broadband services, according to a 2010 study by Saïd Business School at Oxford (http://www.sbs.ox.ac.uk/newsandevents/releases/PublishingImages/3 - Broadband quality ranking - by economic development.jpg). That is not surprising, considering that the capital was invested in service delivery, instead of in vying for spectrum.

The next article, which will appear on Sunday, March 4, 2012, will cover erroneous technological assumptions, together with policy issues and possible approaches to a constructive resolution of the gutted prospects of our telecommunications and broadband services sector.


                                                               Shyam (no space) Ponappa at gmail dot com

Reviving BSNL & MTNL: The Right Ringtone

The public sector telecom giants still have valuable assets in their reach, and their networks of hundreds of thousands of kilometres. Focus on improving service quality with a strong partner, and not on one-shot stake sales.

Shyam Ponappa / New Delhi April 1, 2010

Just five years ago, Bharat Sanchar Nigam Ltd (BSNL) was India’s second most profitable company, with net profit of nearly Rs 6,000 crore — nearly equal to Hindustan Unilever’s revenues — with over Rs 36,000 crore in revenues. By March 31, 2010, BSNL expects a big loss, while a competitor, Bharti, with revenues of only Rs 8,000 crore then, has caught up in revenues and is far more profitable. Mahaganar Telephone Nigam Ltd (MTNL), too, is struggling to stay profitable.

While these public sector giants are in a graveyard spiral, they still have valuable assets in their reach and their networks of hundreds of thousands of kilometres. They also have a corps of technical professionals, with unmet user needs burgeoning in cities, towns, and all over India’s hinterland.

How can BSNL/MTNL be extricated from their predicament, and built up to become more like a State Bank of India, instead of a moribund Air India and the once-dominant Indian Airlines? Consider the present and future possibilities.

The pertinent facts are:

• The network and capacity are valuable assets for operations, provided services are rationalised and extended in commercially sound ways.
• Neither BSNL nor MTNL has been able to successfully capitalise on its headstart in WiMAX and 3G.
• Given present trends, both will run up mounting losses.

All management and employees, including the Indian Telecom Service (ITS) officers, will have to engage in radical changes voluntarily. This is why all stakeholders, including the government, have to seek collaborative solutions, to resolve anachronistic legacy situations that cannot continue on terms as fair as possible, including a VRS, and possibly pay cuts for deferred profit-sharing. The alternative is losing a strategic backbone network-operating capability, something India needs, with the associated hardship for so many employees.

Dire prospects

The outlook for both BSNL and MTNL shows in their performance (see diagram).



For BSNL and MTNL, increased employee costs after the Pay Commission recommendations, together with declining fixed-line revenues, led to deteriorating profits. Meanwhile, years of stalled procurement, decreasing earnings and a recommendation to divest 30 per cent have all led to a stand-off at BSNL, with a threatened strike. Whether in public or private sector, there have to be good services with good profits; otherwise, competitors will devour them.

Doing the unthinkable

Are there ways out? Can these investments in equipment and people be resuscitated by some miracle of management and IT engineering to be at the heart of the country’s expanding communications services? Can their personnel pull together?

That magic could come about if individuals and interest groups rise above themselves, avoiding opportunistic self-enrichment, and approach problems collaboratively instead of antagonistically, and if the government can abjure misguided fiscal zeal.

Ο Instead of divesting a stake as a one-shot, revenue-raising deal, induct a strong partner to build services and revenues.

Ο Serve user needs, instead of offering “products” with some internal geographic or technological definitions that are not easily understood.

Ο Rationalise services like EVDO cards (broadband data cards) that are not customer-centric, because if they work in the rest of the country, they don’t in Delhi and Mumbai, and vice versa.

Ο BSNL and MTNL could go for collaborative data-streaming with 2.4 Mbps EVDO cards usable everywhere, offered with a service level and style that can only come with a hands-on partner changing the off-putting way BSNL and MTNL treat customers.

Ο Get politicians out of procurement, and induct technology like wireless corDECT at 512 Kbps for rural areas if appropriate, even if it is “old” and not state-of-the-art, instead of waiting for years for alternatives that aren’t there of 3G or LTE (Long-Term Evolution or 4G), and will cost much more.

Ο Move up to 3G/LTE after some years of generating profits.

Ο Work with India’s technology companies to build local equivalents of Huwaei and ZTE, with India’s assured markets. (This requires policies far beyond the ambit of the DOT, as in the way China has nurtured Huawei/ZTE for years.) Put the whole package together, end-to-end, and BSNL/MTNL could be winners, as would the public.* Private operators will face competition if this happens, but they can gain from the rise in business levels.

These are big issues for immediate consideration and action. Such challenges are best addressed collaboratively. Although collaboration seems far removed, notable exceptions like Amul, Operation Flood, the Sirmour farmers’ cooperatives for irrigation, SEWA (Self-Employed Women’s Association) and Infosys prove that it is feasible.

Problem-solving vs confrontation and attrition

Thinking and acting in our collective interests require making hard choices after cost-benefit analyses. From this perspective, we should address BSNL and MTNL from an assessment of India’s needs and available alternatives, rather than only as a historical mess. True, the mess has to be dealt with, but with forward-looking considerations of public benefits for the common good.

Employees need to recognise this, juxtaposed with the consequences of unyielding self-interest. We need problem-solving, not battles of attrition from hardened, silo positions of unions, government, and management, or ITS versus the rest, or any entrenched interest group. These legacy positions are “dug in”, and perpetual confrontation leads to desecration: of service capability, of competitive staying power, productivity and of sheer employability. There is so much more they could do for a potential one billion users.

It isn’t that self-improvement is not being attempted, like the Sanchar Nigam Executives Association (SNEA) addressing processes such as Call Detail Record (CDR) systems for customer care and billing, or Managed Services and Managed Capacity, Bharti’s innovations in outsourcing not only development and maintenance, but even procurement to Ericsson, as recommended by the Pitroda committee.** The change that is required is for all groups to pull together, however simplistic it may sound. Then, these national assets — the networks and human resources — can be leveraged to compete effectively with private operators.


shyamponappa@gmail.com


*We have to execute integrated solutions without omitting critical aspects. For example, of the three prerequisites for eradicating polio, India has focused on vaccines, ignoring clean water and sanitation (see: “Infectious Diseases and the Colonised Mind”, K S Jacob: http://beta.thehindu.com/opinion/lead/article303720.ece)

**See http://merabsnl.blogspot.com/2010/02/problems-relating-to-cdr-project-in.html and http://merabsnl.blogspot.com/