Kick-Start the Economy with Cash Flow & Connectivity

Pay government dues and enable high-speed connectivity.

Amidst the welter of problems the government is dealing with, one hopes that the removal of restrictions and lockdown status are being thought through with expert inputs and analysis. We can conjecture on the priorities for economic revival, and here is a short wish list.

Cash flows have to start for any downstream problems to be addressed, without questioning that a major remediation to India’s lockdown trauma is providing food and shelter to stranded workers, and getting them to where they want to go. Many will scatter from their work or holding areas back to their homes. What’s needed for economic revival is the opposite: For workers to return to work and resume productive activities. But this may be unrealistic to expect after the loss of confidence from the shocks of the peremptory lockdown, the deprivation of livelihood, and of food and shelter.

Other stranded people who have the means also need the right to move freely while maintaining prudent constraints. Indians abroad are being flown home; Indians in the country need facilitation too.

Next on the list is restarting the economy by ending the forced closure of productive activity for compensation, spending for products and services, and of economic flows. Recall that before the lockdown, we had a monumental late-payments problem, namely, the non-performing assets (NPAs) of the banks and financial institutions. While there has been considerable scrutiny of the NPAs and fraudsters, much less attention is directed at a major component — that is, late payment of dues and refunds by government and its agencies. These encompass all payments, such as to state and private electricity generators and distributors, airlines, hotels, restaurants, manufacturing companies and service providers, and all refunds of taxes, including goods and services tax (GST) and customs duties.

Source: https://www.eulerhermes.com/en_global/economic-research/insights/In-line-with-the-economic-slowdown-companies-preemptively-reduced-payment-delays-except-for-Mediterranean-countries.html

This aspect escapes corrective action despite its magnitude, although it is remediable through decisive action. It has to be resolved through executive intervention, because it is a precursor and cause of a significant proportion of NPAs.  Among larger commercial enterprises, late payments are a problem for some countries more than others, as seen in the heat map for 2018 by Euler Hermes, a trade credit insurance company (see chart). Surprisingly, India has a reasonable rank of 24 out of 36 countries, and its average at 67 days is close to the overall average of 65 days. Also, 25 per cent of corporations paid before 30 days, although another 25 per cent paid after 96 days. China had the highest average at 92 days, followed by Greece, Italy and Morocco.

However, smaller enterprises suffer considerable delays, as represented to the finance minister before the Budget recommendations in January this year, because their receivables take months to clear.

The biggest problem is not reflected in the chart: It is in delayed government payments and tax refunds.

All the delays have a cascading effect resulting in NPAs. For instance, Nasscom complained in 2017 that overdue payments from central and state governments and public sector undertakings for IT projects amounted to nearly Rs 5,000 crore. A survey is under way on the present status. Another example is delayed subsidies to fertiliser manufacturers that are notorious for creating cash flow crises. A third example is large dues and contested payments owed by the National Highways Authority of India (NHAI). In August last year, the NHAI was the focus of an effort by the Prime Minister’s Office (PMO) to clear its enormous debt overhang, and its contested dues.

Yet, the government resists timely payments even towards public sector dues, while being remorseless with its charges and collections. It is as though there is no understanding of cash flows, except perhaps for election funding. Overdue government payments are an obvious starting point to clear NPAs and create confidence through liquidity, emulating what is already practised here by India’s best corporations.

Another inexplicable impediment is the totally conflicted approach to information and communications technology (ICT). As the past two months have shown, reviving and remodelling our economy depends on effective digitisation and communications for two streams. One is for more efficient production and service delivery in all areas, such as agriculture, dairy farming and horticulture, and so on, as well as finance, manufacturing, trade, logistics, tourism, and in compliance. The other is in functioning in an altered paradigm that depends on effective support for remote working. Yet, telecom companies and high-tech manufacturers are beset with overdue payments on the one hand, while the former are crushed by government charges and retrospective demands. Meanwhile, a failed approach of high-priced spectrum auctions continues, while the most elementary and logical regulatory reforms for wireless broadband are ignored, such as enabling 60GHz and other spectrum bands discussed below.

Is it possible that the authorities do not understand that without wireless reforms, India is just holding itself back, or are they simply not acting on what they know? Consider what other countries are doing to improve productivity. Last month, America opened up the entire 6GHz band consisting of 1,200MHz of spectrum for unlicensed use for faster Wi-Fi.1 Licensed primary users of microwave for backhaul, utilities, and public safety were protected. The EU countries are likely to follow soon. For India, following this lead for Wi-Fi is a foregone conclusion. Dithering because nobody in power cares to even follow feasible measures wisely will only hold India back, as in disallowing the use of unused spectrum bands (60GHz, 70-80GHz, and 500-700MHz).2

If only the PMO would task appropriate authorities to consider permitting the use of four bands, namely, 60GHz, 70-80GHz, 500-700MHz, and 6GHz, the likelihood of better connectivity for high-speed broadband countrywide would greatly improve. The first three bands would be for licensed operators excepting indoor use of 60GHz, and the fourth would be for Wi-Fi. Such action will comply with the Supreme Court’s requirement of having public-interest policies in place for not auctioning spectrum.

Acting on cash flow plus connectivity, both initiated by the government, can effectively kick-start the economy.

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Shyam (no space) Ponappa at gmail dot com

1: https://docs.fcc.gov/public/attachments/DOC-363945A1

https://www.theverge.com/2020/4/23/21231623/6ghz-wifi-6e-explained-speed-availability-fcc-approval

2: https://organizing-india.blogspot.com/2020/03/indias-self-goal-in-telecom.html

After the Lockdown

Planning for the revival of the economy after the lockdown.

 Shyam Ponappa    |   April 2, 2020 00

This is a time when, as the authorities deal with a lockdown, there needs to be an equal emphasis on providing for large numbers of people without the money for food and necessities, while the rest of us wait it out. Hard as it is, an MIT scholar writes that after the Spanish flu in 1918, cities that restricted public gatherings sooner and longer had fewer fatalities, and emerged with stronger economic growth.1 It is likely that costs and benefits vary with economic and social capacity, and we may have a harder time with it here. Going forward, government action to help provide relief, rehabilitate people and deal with loss needs to be well planned, including targeting aid to the urban and displaced poor.2

As important now as to ensure the lockdown continues is to plan on how to revive productive activity and the economy, and restore public confidence. A systematic approach will likely yield better results.

A major element of the recovery plan is steps such as liberal credit and amortisation terms, perhaps much more than the three-month extension the Reserve Bank of India (RBI) has announced. A primary purpose is the re-initiation of large-scale activities such as construction, of which there are reportedly about 200,000 large projects around the country. These have to be nursed back to being going concerns. The RBI may need to consider doing more, including lowering rates.

An ominous development that has grown as the economy slowed is financial stress that could swell non-performing assets (NPAs). At the half-year ending September 2019, about half of non-financial large corporations in India, excluding telecom, showed financial stress (see table).

Source: Krishna Kant: "Coronavirus shutdown puts Rs 15-trillion debt at risk, to impact finances", BS, March 30, 2020:
https://www.business-standard.com/article/markets/coronavirus-shutdown-puts-rs-15-trillion-debt-at-risk-to-impact-finances-120032901036_1.html

These include some of India’s largest companies, producing power, steel, and chemicals. The 201 companies have total debt of nearly Rs 15 trillion, more than half of all borrowings. There is also the debt overhang of the National Highways Authority of India, and of the telecom companies. Ironically, the telecom companies are our lifeline now, despite having nearly collapsed under debt because of ill-advised policies in the past, which have still not changed. Perhaps our obvious dependence on telecom services now will spark well conceived, convergent policies for this sector, so that we can function effectively.  

A start with immediate changes in administrative rules for 60GHz, 70-80GHz, and 500-700MHz wireless use, modelled on the US FCC regulations as was done for the 5GHz Wi-Fi in October 2018, could change the game. It will provide the opportunity in India for the innovation of devices, their production, and use, possibly unleashing this sector. This can help offset our reliance on imported technology and equipment. However, such changes in policies and purchasing support have eluded us thus far. Now, the only way our high-technology manufacturers can thrive is to succeed internationally, in order to be able to sell to the domestic market. Imagine how hard that might be, and you begin to get an inkling of why we have few domestic product champions, struggling against odds in areas such as optical switches, networking equipment, and wireless devices. For order-of-magnitude change, however, structural changes need to be worked out in consultation with operators in the organisation of services through shared infrastructure.

For the longer term, a fundamental reconsideration for allocating resources is needed through coherent, orchestrated policy planning and support. What the government can do as a primary responsibility, besides ensuring law and order and security, is to develop our inadequate and unreliable infrastructure, including facilities and services that enable efficient production clusters, their integrated functioning, and skilling. For instance, Apple’s recent decision against moving iPhone production from China to India was reportedly because similar large facilities (factories of 250,000) are not feasible here, and second, our logistics are inadequate. Such considerations should be factored into our planning, although Apple may well have to revisit the very sustainability of the concept of outsize facilities that require the sort of repressive conditions prevailing in China. However, we need not aim for building unsustainable mega-factories. Instead, a more practical approach may be to plan for building agglomerations of smaller, sustainable units, that can aggregate their activity and output effectively and efficiently. Such developments could form the basis of numerous viable clusters, and where possible, capitalise on existing incipient clusters of activities. Such infrastructure needs to be extended to the countryside for agriculture and allied activities as well, so that productivity increases with a change from rain-fed, extensive cultivation to intensive practices, with more controlled conditions.

The automotive industry, the largest employer in manufacturing, provides an example for other sectors. It was a success story like telecom until recently, but is now floundering, partly because of inappropriate policies, despite its systematic efforts at incorporating collaborative planning and working with the government. It has achieved the remarkable transformation of moving from BS-IV to BS-VI emission regulations in just three years, upgrading by two levels with an investment of Rs 70,000 crore, whereas European companies have taken five to six years to upgrade by one level. This has meant that there was no time for local sourcing, and therefore heavy reliance on global suppliers, including China. While the collaborative planning model adopted by the industry provides a model for other sectors, the question here is, what now. In a sense, it was not just the radical change in market demand with the advent of ridesharing and e-vehicles, but also the government’s approach to policies and taxation that aggravated its difficulties.

Going forward, policies that are more congruent in terms of societal goals, including employment that supports the development of large manufacturing opportunities, need to be thought through from a perspective of aligning and integrating objectives (in this case, end-to-end transportation). Areas such as automotive and other industries for the manufacture of road and rail transport vehicles need to be considered from the perspective of reconfiguring the purpose, flow, and value-added, to achieve both low-cost, accessible mass transport, and vehicles for private use that complement transportation objectives as also employment and welfare.

Systematic and convergent planning and implementation across sectors could help achieve a better revival.

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Shyam (no space) Ponappa at gmail dot com

1: https://www.reuters.com/article/us-health-coronavirus-usa-reopen-analysi/the-u-s-weighs-the-grim-math-of-death-vs-the-economy-idUSKBN21H1B4

2: https://www.financialexpress.com/opinion/the-coronavirus-lockdown-and-indias-urban-vulnerables/1915316/

India's 'Self-Goal' in Telecom

And urgent steps to avert a cascading crisis.

Shyam Ponappa   |   March 5, 2020

The government apparently cannot resolve the problems in telecommunications. Why? Because the authorities are trying to balance the Supreme Court order on Adjusted Gross Revenue  (AGR), with keeping the telecom sector healthy, while safeguarding consumer interest. These irreconcilable differences have arisen because both the United Progressive Alliance and the National Democratic Alliance governments prosecuted unreasonable claims for 15 years, despite adverse rulings! This imagined “impossible trinity” is an entirely self-created conflation.

If only the authorities focused on what they can do for India’s real needs instead of tilting at windmills, we’d fare better. Now, we are close to a collapse in communications that would impede many sectors, compound the problem of non-performing assets (NPAs), demoralise bankers, increase unemployment, and reduce investment, adding to our economic and social problems.

Is resolving the telecom crisis central to the public interest? Yes, because people need good infrastructure to use time, money, material, and mindshare effectively and efficiently, with minimal degradation of their environment, whether for productive purposes or for leisure. Systems that deliver water, sanitation, energy, transport and communications support all these activities. Nothing matches the transformation brought about by communications in India from 2004 to 2011 in our complex socio-economic terrain and demography. Its potential is still vast, limited only by our imagination and capacity for convergent action. Yet, the government’s dysfunctional approach to communications is in stark contrast to the constructive approach to make rail operations viable for private operators.

India’s interests are best served if people get the services they need for productivity and wellbeing with ease, at reasonable prices. This is why it is important for government and people to understand and work towards establishing good infrastructure.

What the Government Can Do

An absolute prerequisite is for all branches of government (legislative, executive, and judicial), the press and media, and society, to recognise that all of us must strive together to conceptualise and achieve good infrastructure. It is not “somebody else’s job”, and certainly not just the Department of Telecommunications’ (DoT’s). The latter cannot do it alone, or even take the lead, because the steps required far exceed its ambit.

Act Quickly

These actions are needed immediately:

• First, annul the AGR demand using whatever legal means are available. For instance, the operators could file an appeal, and the government could settle out of court, renouncing the suit, accepting the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruling of 2015 on AGR.

• Second, issue an appropriate ordinance that rescinds all extended claims. Follow up with the requisite legislation, working across political lines for consensus in the national interest.

• Third, take action to organise and deliver communications services effectively and efficiently to as many people as possible. The following steps will help build and maintain more extensive networks with good services, reasonable prices, and more government revenues.

1. Enable Spectrum Usage on Feasible Terms

1. Wireless regulations

It is infeasible for fibre or cable to reach most people in India, compared with wireless alternatives. Realistically, the extension of connectivity beyond the nearest fibre termination point is through wireless middle-mile connections, and Wi-Fi for most last-mile links. The technology is available, and administrative decisions together with appropriate legislation can enable the use of spectrum immediately in 60GHz, 70-80GHz, and below 700MHz bands to be used by authorised operators for wireless connectivity. The first two bands are useful for high-capacity short and medium distance hops, while the third is for up to 10 km hops. The DoT can follow its own precedent set in October 2018 for 5GHz for Wi-Fi, i.e., use the US Federal Communications Commission regulations as a model.1 The one change needed is an adaptation to our circumstances that restricts their use to authorised operators for the middle-mile instead of open access, because of the spectrum payments made by operators. Policies in the public interest allowing spectrum use without auctions do not contravene Supreme Court orders.

2. Policies: Revenue sharing for spectrum

A second requirement is for all licensed spectrum to be paid for as a share of revenues based on usage as for licence fees, in lieu of auction payments. Legislation to this effect can ensure that spectrum for communications is either paid through revenue sharing for actual use, or is open access for all Wi-Fi bands. The restricted middle-mile use mentioned above can be charged at minimal administrative costs for management through geo-location databases to avoid interference. In the past, revenue-sharing has earned much more than up-front fees in India, and rejuvenated communications.2 There are two additional reasons for revenue sharing. One is the need to manufacture a significant proportion of equipment with Indian IPR or value-added, to not have to rely as much as we do on imports. This is critical for achieving a better balance-of-payments, and for strategic considerations. The second is to enable local talent to design and develop solutions for devices for local as well as global markets, which is denied because it is virtually impossible for them to access spectrum, no matter what the stated policies might claim.

2. Policies and Organisation for Infrastructure Sharing

Further, the government needs to actively facilitate shared infrastructure with policies and legislation. One way is through consortiums for network development and management, charging for usage by authorised operators. At least two consortiums that provide access for a fee, with government’s minority participation in both for security and the public interest, can ensure competition for quality and pricing. Authorised service providers could pay according to usage.

Press reports of a consortium approach to 5G where operators pay as before and the government “contributes” spectrum reflect seriously flawed thinking.3 Such extractive payments with no funds left for network development and service provision only support an illusion that genuine efforts are being made to the ill-informed, who simultaneously rejoice in the idea of free services while acclaiming high government charges (the two are obviously not compatible).

Instead of tilting at windmills that do not serve people’s needs while beggaring their prospects, commitment to our collective interests requires implementing what can be done with competence and integrity.

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Shyam (no space) Ponappa at gmail dot com
1. https://dot.gov.in/sites/default/files/2018_10_29%20DCC.pdf
2. http://organizing-india.blogspot.in/2016/04/ breakthroughs- needed-for-digital-india.html
3. https://www.business-standard.com/article/economy-policy/govt-considering-spv-with-5g-sweetener-as-solution-to-telecom-crisis-120012300302_1.html

Comments & Responses-2020-03-06

ASIT

Facilitate - that's anathema. Technology has moved too fast and will continue to outpace the convolutions of the bureaucracy. First, they need find who wrote the Rule related to AGR, who signed off on it - it must all be on the record - and let the country know who thought Revenue was all that was important, nothing else. Rescind the definition retrospectively, we love doing that , why not here where it significantly impacts the aam admi ? That may be tantamount to admitting guilt in some form in bad rule writing, but then as the world loves to say, we can all move on - where to, no one knows.

Response re Facilitation:

Two instances where our governments have done well are in IT enabled services pre-2000, and in the automotive sector: “the Automotive Mission Plan (AMP) 2006-2016 was a programme across government agencies, industry participants, and academics, to make India a global hub for the automotive industry. It was successful despite the slumps of 2008 and 2013-14, and employment increased from 10 million to 32 million by 2016. The next phase is under way through AMP 2016-2026(http://www.siamindia.­com/cpage.aspx), aiming to more than double exports to 35-40 per cent of output, and increase employment by 65 million. Momentum has declined in the last year[this was written in Augsut 2019, therefore now two years, and facilitation has faltered], however, because of a number of adverse factors. These include confusion and uncertainty regarding policies on diesel and electric vehicles, trade tensions, slowing gross domestic product (GDP) growth here and abroad, higher costs from mitigation strategies and taxes, and funding constraints arising from problems in the financial sector.”

From: https://organizing-india.blogspot.com/2019/08/the-automotive-slump-industrial-policy.html

NARENDRA M.APTE

1. This is an interesting view on the current scenario in the telecom services sector. 2. I am a very small customer of telecom services, one among the millions. I say that so long as quality of service provided to me is good and so long as service is provided at a reasonable price, I have no reason to favour this or that provider of telecom services. 3. Question is this: should I be really concerned about financial health of telecom companies? 4. It is desirable that there are proper discussions between the telecom companies and the Department of Telecommunications (DoT) as regards final liability of telecomm companies towards AGR dues. These discussions should be held with a simple objective- to end the uncertainty about AGR dues. 5. One wonders what kind of relief our Central government can grant to three telecom companies, particularly to Vodafone Idea, the merged venture of Vodafone and Idea Cellular. In case the govt. grants such relief, who would be the beneficiary? Would we, as telecom services customers, benefit in the long run? Once an amicable solution is found to current problems of telecom companies, DoT should advise the telecom companies to pay the dues as per the solution. If this does not happen, then customer like will face many a problem and there may be unintended ramifications.

Response to #2-4: Should citizens be concerned about the state / health of industry sectors (and telecom in particular)? 

Answer: If the product or service is in the category of Fast Moving Consumer Goods, competition among many providers is generally sufficient to ensure quality and price, provided the market can support a reasonable/realistic price that allows maintaining certain levels of standards.  What’s a reasonable/realistic price?  One that yields a reasonable profit.  What are adequate levels of standards?  Safe, healthy, hygienic and aesthetically pleasing, for instance, for inexpensive biscuits or food items, or soap, in terms of ingredients, cleanliness, attractive presentation or packaging, and waste management.  For infrastructure services, scale of organisation, production and delivery determine the market structure.  Sectors such as electricity, water, telecom, railways, airlines, and fossil fuels are network industries driven by scale.  The structure tends to have no more than a few large players, and these industries usually require regulation to prevent monopolistic exploitation, or are managed as regulated utilities.  For such products and services, the state of the industry determines the availability, quality and price.  This is why it behoves citizens to take an informed view that supports sustainable models for the long term, in order to have stable supply of services or products of good quality at reasonable prices.  Otherwise, they are likely to get shoddy, overpriced, or unreliable services, or as in rural broadband for many people, it may not be available at all.

[e.g., see https://www.sciencedirect.com/topics/social-sciences/network-industry]

#5:

We in India often expect governments or enterprises to provide for our needs without having to think about them.  Whereas as citizens in a democracy, self-government implies the obligation – the flip side of citizens’ rights – to contribute to the maintenance of standards and governance in our communities, including through exercising consumer choice and advocacy.  The objective of any problem resolution should be the sustained common good or public interest, although we have typically not applied such clarity and forethought in our approach.  But having had a democratic franchise thrust upon us without having learned the duties of citizens, we haven’t got there yet.