Infrastructure Sectors That Boost Growth

 

Apply proven policies in telecom and electricity to rev up the economy.

Shyam Ponappa  |   August 4, 2022 

Does infrastructure spending promote economic growth, or is it the other way around? The arguments go back to questions such as whether building America’s railroads in the 1850s led to growth, or the reverse. While the costs and benefits of building transportation may be contested, partly because of what is measured and what is not, one positive linkage that has emerged is between improvements in information and communications technology and economic growth.

Potentially useful findings are given below.

1. A World Bank study (2021) reviewed the contribution of three categories of infrastructure to growth from 1992-2017: Transport, electricity, and telecommunications. The study covered 87 countries out of 189, because of missing data and to ensure a balanced panel. One finding was that infrastructure, especially electricity generation and telecommunications, significantly affected economic growth. This effect was larger more recently (1992-2017) than before (1970-1991), and developing economies experienced stronger effects than industrialised economies.¹

The researchers considered the contribution of physical capital, human capital, electricity, roads, railways, mobile phones and telephones to gross domestic product (GDP). The first principal component derived from these that explained most of the variation, comprising mainly electricity, mobile phones, and land-line phones, was characterised as the telecommunications and electricity factor. The second principal component, comprising largely roads and railways, was characterised as the transport factor. These factors roughly kept pace with population except mobile phones, which increased very significantly, driving the increase in the first principal component.

The chart of the GDP response to the two principal components demonstrates the effect of the primarily electricity-and-telecommunications principal component PC1, and of the primarily transport principal component PC2. The latter initially reduced output for some years. The implication is a need for policies that prioritise telecommunications, including broadband and internet, and electricity.

2. An Asian Development Bank publication on digitalisation and economic performance in India and China found that the internet and mobile density have a significant impact on economic growth.²

3. A study of factors that drove the surge in India’s service exports by researchers at the Institute of Economic Growth and Symbiosis found that attributes that affect the highest service exports (computers, communication and other services were nearly three times the traditional service exports in 2013), were driven by teledensity, together with financial sector development, human capital, and R&D expenditure (chart 2 ).³

The impact of telecommunications and electricity together with strengths in computers and communications services points to India’s needs: Prioritise enabling policies for telecommunications infrastructure for broadband and internet (integrated with the rest: Electricity and transportation, water and sewerage, logistics/transport, financial support, taxation, and so on). Parallel support is required to develop local ecosystems for equipment, which would have to be imported otherwise.

Effect on Policies 

What matters is how these conclusions affect government’s policies, because policies and regulations permit or constrain what we do and how we live. The solutions required ideally are for overall community needs, and not for what individuals, sectors, or stakeholders might need, as the consideration below indicates.

5G Auction & Prospects

Now that the government has bagged Rs 1.5 trillion from the 5G auction, what are the prospects for growth? If this amount is channelled to support BSNL/MTNL, with more government intervention to make them profitable, consider the probable outcomes.

(a) Things could turn out as planned, resulting in a strong telecommunications sector with four operators propelling growth. BSNL/MTNL certainly need support for their important, widespread services. The issue is whether they can be profitable, given their role. On the one hand are their market position in coverage/saturation and diminished share, while on the other are their responsibilities for essential services for strategic purposes and in difficult, unremunerative locations.

It is unreasonable to expect profitable performance in competition with private operators who can cherry-pick their markets. The very idea that governance through providing essential services must make profits is untenable, as it is for security, defence, or disaster management. Yet, this expectation has led to price cuts that have ended in a race to the bottom. Such pricing is a disservice, because it constrains investment in services, and thereby overall country capacity, to low-quality bottom-feeding. We expect and get low prices, but are saddled with low quality. The sector cannot build high-quality, reliable services, and is falling farther behind global service levels. India cannot possibly compete burdened with such self-imposed handicaps.

(b) Another possible outcome is that there will be unsustainable price cuts as before, with unfair access to spectrum (announced), and unfair competition from corporations. The losses could be perpetual, with the sector and the economy in shambles.

The Alternative for Policymakers 

Instead of continuing with unreasonable and ineffective practices that prevent us from realising our potential, even now, the government can change policies to capitalise on our strengths of being imaginative and resourceful, with the capacity to perform well with good systems and processes.

The success of NTP-99 can be repeated, by converting auction payments to revenue-share, this time for spectrum instead of licence fees. The difference is that operator dues can be financed from actual revenues, and not loans on anticipated revenues. This will not only enable immediate investment in networks and services, but as with NTP-99, is likely to result in substantial growth, with much higher government collections, and as a multiplier across sectors.

Legislation can be framed to convert spectrum auction payments to a reasonable percentage of revenues, as for licences. Instead of destabilising markets to favour BSNL/MTNL or corporations, insights can be applied and best-practice regulations can be adapted for our circumstances. The introduction of shared infrastructure through two or more mandatory consortiums led by corporate entities, with BSNL/MTNL as a strategic stakeholder ensuring national security and public interest, will enable even greater leveraging of network assets.

---

Shyam (no space) Ponappa at gmail dot com

(1): Timilsina G. et al: https://openknowledge.worldbank.org

(2): D Sahoo et al: https://www.adb.org/publications

(3): Pravakar Sahoo & Ranjan Kumar Dash: "What Drives India's Surge in Service Exports?"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3620313

Backsliding Without Broadband

We are losing out on so much of our potential because of regulatory constraints.

[But of course, that is only a part of the story.  The rest of it is lack of organization, and of discipline, which is a long, long story.]

Shyam Ponappa      |    April 1, 2021

Not being permitted to use available spectrum in line with technological developments and global applications is like being deprived of access to the air around one. That our way-below-par broadband is not systematically addressed as a critically important way to provide requisite infrastructure to improve people’s lives is troubling. We lose out on the facilitation of education, healthcare, productivity, commerce, industry, government services, and entertainment. Is the government unaware of our deprivation? Surely the authorities are capable of devising ways to use spectrum for the common  good. 

Whatever other matters they are busy with, this is an area that should have priority.

The difficulty is in satisfying competing demands arising from what can best be described as our collective gnarled psyche. One preoccupation is with making corporations alone pay for public resources without allowing for profits. This apparently pervades not only the government’s thinking, but extends to many people at large, in the press and media, polity, civil administration, and judiciary. Compounded with the anxiety of decision-makers to protect themselves from overzealous future witch-hunts, this ensures there are no innovative attempts at resolving our communications infrastructure needs. One also sometimes encounters sentiments questioning whether we need 5G, or faster internet, or notions that we already have adequate broadband, and so on. We are inured to dysfunctional infrastructure support, and have become habituated to accepting deficiencies in our daily lives. Whether it is dropped calls, slow internet, or sporadic failures in electricity, water supply, or logistics, we treat this shoddy state as acceptable, despite its immense drag on effectiveness and productivity.

Meanwhile, we have just embarked on yet another 4G spectrum auction, while 5G, where we are way behind global developments, seems a lifetime away. If only our policymakers and administrators actively sought ways to improve our communications, including rural broadband, for instance, we might learn from practices elsewhere in the world of adaptations that could be implemented here. One interesting instance is that of the Federal Communications Commission (FCC) in the US. Seeking to improve broadband in underserved markets, in 2019, the FCC began the Rural Digital Opportunity Fund (RDOF) initiative, to channel universal service obligation funds collected from telecom operators to get high-speed networks built and services provided in rural areas. This replaced the prior Connect America Fund programme with its lowest-bid awards that had not worked. In 2020, the FCC conducted a reverse auction for broadband services to rural users, allowing for slower delivery in more remote locations. The tentative award for Phase I is $9.2 billion (Rs 67,000 crore) over the next 10 years in monthly instalments, with time-bound completion requirements. (India has about Rs 55,000 crore in a comparable Universal Service Obligation Fund.)

Over 400 entities, many of them consortiums including electricity distribution companies, have won RDOF contracts to build networks and provide services. Most plan fibre-optic networks, but the biggest winner for $1.3 billion, LTM Broadband, plans to also use high-speed fixed wireless. Another winner, SpaceX, plans Low Earth Orbit satellites to deliver 100 Mbps. There has been criticism from some analysts and contenders who question the feasibility of gigabit wireless networks in place of fibre. This may be uninformed, but it remains to be proven that delivery is on time and profitable.

Despite the difference in our environments, the FCC’s example has useful pointers for India. One is a practicable way to channel USO funds to develop rural broadband, with performance monitoring every six months. Second, a model and time frame to design and conduct a reverse auction, and award the 10-year contracts, with minimal hype. Third, allowing for choice of technologies, including high-speed fixed wireless, satellite, and so on. Finally, a solid foundation is provided by FCC’s supportive approach to making spectrum and infrastructure sharing a reality, including 6 GHz Wi-Fi. This is the sort of action we need in place of more rhetoric.

A complementary approach is that of Sweden and other Nordic countries. Telecom operators there have been sharing infrastructure and spectrum from 2G through 4G, which is now being extended to 5G. Note that all levels of technology (2G, 3G, 4G and 5G) coexist in their networks (1).

For India, policy-makers have to develop approaches, policies, laws, adaptations, and so on that are specific to our context, including culture, institutions, practices, and geographic and social circumstances. One element likely to be necessary for ubiquitous broadband is shared networks in rural areas as well as in dense urban environments. Mandatory provision of shared infrastructure was being considered in Sweden over a decade ago. Given that government’s initiatives and Sweden’s experience with sharing thereafter, network sharing is likely to be extended for internal use without mandatory requirements. In India, too, there is need for government initiatives and incentives. This is because extensive changes in policies, laws, and regulations must be effected, requiring inter-agency coordination and convergence in government departments, legislative agencies, institutions, and among stakeholders. The latter will include service providers, manufacturers, and user groups. Sweden’s experience shows there are compelling cost and energy saving reasons for sharing, apart from environmental impact mitigation, but that without government initiatives and facilitation, the common-good outcomes are not likely to evolve naturally in India, where passive sharing has been permitted and practised for years.

Our desperate need is for revamped spectrum regulations, making the relatively straightforward changes aligned with the FCC model to the extent feasible, after due consultation with industry and other stakeholders. Extending Wi-Fi on the lines of what has already been done for 5 GHz is the first step. The target bands are 6 GHz for Wi-Fi, 60 GHz for indoor Wi-Fi and outdoor authorised shared access by licensed operators like Wi-Fi, and similar outdoor regulations for 70-80 GHz. After that [the end-to-end connectivity is enabled -- which is infeasible now], a systematic initiative is required for network sharing through consortium ownership, with similar holdings in verticals with infrastructure providers, and government participation through BSNL. All concerned government agencies will need to be involved, as must all stakeholders.

---

Shyam (no space) Ponappa at gmail dot com

1: https://www.nokia.com/blog/the-well-kept-secret-of-2g-3g-4g-5g-dynamic-spectrum-sharing/

The Telecom Crisis Is An NPA Problem

After interim relief for telecom, structural reforms must follow.

Shyam Ponappa   |   November 7, 2019

The Committee of Secretaries to mitigate financial stress in telecom must act quickly on interim measures for the sector to survive. But is its mere survival sufficient for India’s development and growth? Is it possible to fix telecom in isolation?

Our communications needs are very poorly served, although at rock-bottom prices. Is it even possible for our hapless citizens and enterprises to get past shoddy services and productivity foregone, to trade with other countries on a more even footing? Yes, if we succeed at major structural changes, starting with telecom. But to transform telecom, the government and all of us have to come to the stark realisation that just as finance drives the economy, digitisation and communications have to be at the heart of production and delivery. Telecom and digitisation are strategic enablers for all infrastructure and in all sectors. Leading countries are so far ahead and functioning so effectively that it is difficult for us to imagine. We must want that path, plan for it, and put in the requisite effort. Simply tweaking overdue payments, tinkering to reduce charges, and plugging along as before isn’t going to get us there. In this sense, the Committee’s charter is too limited. All it can do is assuage the pain, whereas our need is for a revitalised industry to serve our purposes.

If the Committee’s scope were broader, could we actually adopt digitisation as our core strategy for development and growth? A study on China, “Telecommunications reforms in China”, about the transformation in policies to make digitisation its development priority, is instructive.1 Their approach to reforms was to balance the government’s aims of universal coverage, governance and control, and efficiency; industry’s profit-seeking; and the people and enterprises’ needs for freer, more rapid communications. This is what we need to do, in a way that works for us.

Also, the government, the judiciary, the press and users need to understand and accept that the telecom crisis is part of the larger non-performing assets (NPAs) problem. It has systemic links to NPAs and banking, which links to real estate and construction, electricity and roads, and stable and predictable taxes. Government payment delays and tax terrorism must stop. Business as usual will not resolve NPAs soon to enable growth. These two articles explain why and deserve attention.2 Essentially, entities that take deposits need Reserve Bank of India (RBI) regulation. In a crisis, people with domain expertise and capacity must be appointed to take immediate steps to protect assets and operations, as with Satyam or IL&FS, because seizing/freezing assets often hurts depositors and creditors. A bureaucratic process as with the Punjab & Maharashtra Co-operative bank is likely to result in yet another zombie bank, burning depositors’ money just to stay alive.

The Committee’s focus should be on cash flows, modelling cash flows and their timing, not just the present value of discounted flows, or other extraneous emotional, political, or judicial/administrative reasons. Employment is a legitimate consideration, but has to be sustainable, with timely cash generation. Else, other sources of timely cash support must be arranged, because without sustained cash flows, no gambit or subsidy can succeed (and maintaining unproductive employment will not be possible). Some fixes need major legislative changes to policies.

BSNL & MTNL

On BSNL and MTNL, a recent article sets the context and explains why the revival plan is unrealistic.3 In short, these poorly supported and much-abused enterprises have so much debt that earnings before interest, taxation, depreciation and amortisation would have to be at least 35 per cent. Governments have used them as market spoilers as with Air India, precipitating unsustainable price wars that gutted the industry.

An alternative is to downsize, re-skill as needed, and retain the public sector entities (as one or both) in the role of security-and-public-interest-anchors in infrastructure consortiums. These must be run by the private sector (and in strategic areas, by defence). This will facilitate policies such as assigning spectrum for payment on usage without auctions, and extending Wi-Fi to 60 GHz and 6 GHz (details at: https://organizing-india.blogspot.com/2019/10/extend-tax-cut-logic-to-infrastructure.html, and https://organizing-india.blogspot.com/2018/11/a-great-start-on-wi-fi-reforms.html).

Weak Financial Systems

The Committee needs to apprehend and convey the need to strengthen financial institutions. Financial systems provide second-order infrastructure for productive activity and wellbeing. They need an adequate underlay of first-order, basic infrastructure, comprising communications, energy, water, waste, sewerage, and transport, leaving aside housing and the basics of security, and law and order. While most of us take these for granted, there should be no doubt about how critical these attributes are, and that they are being eroded and increasingly at risk because of social disorder and economic inadequacies. In addition, basic health care and education are essential adjuncts for the supply of trainable people to operate these sectors.

Until some years ago, despite weak infrastructure, financial systems were among India’s real strengths, although eroded periodically by disruptions resulting in NPAs. However, there was strength in the professional capacity of this sector that held up in spite of the pressures. Over time, these institutions have been severely degraded, through laxity, complicity, pressures for evergreening, the abrupt imposition of credit quality and NPAs, the extent of frauds because of lax or complicit supervision and the reputational damage, the buffeting from demonetisation and pressures to cross-sell products such as insurance. Governments need to understand this and support building professionalism, avoiding melas and waivers.

The scope of the Committee could be expanded to set the objectives of telecom and digitisation in the interests of governance, industry, and users, and to outline next steps. They could consider the experience of China and others such as Sweden for this vast effort, while addressing linkages and NPA issues. Perhaps, they could be exemplars by setting the tone for a national approach that is not departmental and becomes bipartisan, and helps to move away from our abrasive, confrontational politics that leads to deadlocks.

---

Shyam dot Ponappa at gmail dot com

1: Becky P.Y. Loo, October 2004: https://www.researchgate.net/publication/227426547_Telecommunications_reforms_in_China_Towards_an_analytical_framework

2: Debashis Basu, October 27, 2019: https://www.business-standard.com/article/opinion/how-to-fix-the-pmc-bank-crisis-119101400006_1.html October 13, 2019: https://www.business-standard.com/article/opinion/lessons-from-pmc-why-govt-is-responsible-for-co-operative-bank-crises-119102700620_1.html

3: Rahul Khullar, October 31, 2019: https://www.business-standard.com/article/opinion/don-t-bet-on-bsnl-mtnl-s-revival-119103100040_1.html

Extend The Tax-Cut Logic To Infrastructure

A judicious lowering of input costs can increase productivity.

Shyam Ponappa    |   October 3, 2019 

With the tax cuts, it is as though the government suddenly stumbled on the wisdom of deferred gratification. The government line is that tax cuts will give much more in the long run than revenue lost, and we heartily agree. Yet, this logic isn’t extended to personal and consumer taxes. Nor is it applied to essential inputs to infrastructure to reduce costs further, specifically for radio frequency spectrum for communications, and for coal for electricity.

The cut in corporate taxes is brilliant. A significant step in responsive governance, and so utterly overdue. No ifs and only a few buts, which one hopes influencers and decision makers will consider and act on in short order. The concerns are about interrelated processes (for completeness in end-to-end design and execution, upping the odds of delivery and achievement), and symmetry on the demand side, without which we cannot get optimal results.

Many have expressed reservations about the tax cuts instead of incentives to consumers to revive demand. Some experts have cited the failure of such reforms globally in reviving growth. While these concerns may have merit, the key criteria in such comparisons are whether the circumstances are comparable, or too different. For instance, are the markets large, with scope for expansion, or small, less diverse, or more saturated; what is the level of momentum or inertia? And so on.

While stock markets were euphoric, experts have been divided in their opinion, because demand has been subdued and these are supply-side incentives. Another reason is that companies paying high taxes gain the most, while the majority don’t gain directly in profits. Profits will rise for the highest taxpayers by 11 per cent, while large FMCG companies such as HUL, ITC, and Nestle will increase profits by 9 per cent (Moneycontrol). Profits for IT and pharmaceutical companies are estimated to increase by 5 to 6 per cent, and existing automobile manufacturers are unlikely to benefit directly during this slowdown, although new ones will pay 17 per cent tax, as in Singapore. However, a number of auto component manufacturers who paid taxes at 29-35 per cent will get increased profits of 4 to 10 per cent, and Icra expects localisation to increase. Crisil’s study of nearly 1,000 companies in 80 sectors estimated that profits would increase by nearly Rs 37,000 crore, while the State Bank of India, based on about 3,500 companies (and this newspaper based on 490 companies), estimated increased profits of about Rs 45,000 crore, and India Ratings of Rs 60,000 crore. These profits could result in price cuts, spurring demand.

However, India’s tax rates are still not especially competitive. A recent article in these pages showed that effective tax rates in India are still among the highest after including tax on dividends and share buyback, at 46.8 per cent for existing manufacturers, and 41.1 per cent for new manufacturers. By contrast, comparable rates in Vietnam and Thailand are 20 per cent, and in Indonesia and China, 25 per cent. For details, see chart below.

Source: Sachin P. Mampata & Krishna Kant

https://www.business-standard.com/article/economy-policy/effective-tax-on-firms-still-high-119092601548_1.html

Add costs for improving infrastructure (stable electricity supply; water, sewerage, and waste management; communications; transport and logistics), and law and or­der, and that’s how much must be done for our supply side to be really competitive. Then, there’s demand, which needs a stable, functioning GST system with lower rates, and income tax cuts to match.

If time, energy and money were channelled into these areas instead of events and jamborees, we could be further along in unleashing our potential. Thereafter, skilling and education applied to systematic development could take us even further.

Tax-cuts & infrastructure

It is this episodic intervention without logical consistency or integrated, step-by-step convergence focussed on delivery that results in our disjointed infrastructure, and this infrastructure is the very foundation for our productivity and wellbeing. Apart from apparent lack of systems thinking, detailed process flows,1 and project management, there is also confusion between free-market ideas and the application of any form of industrial policy, because of the backlash from past mistakes with dirigisme and socialist planning.

This is where we have to leap across the chasm, and either “get it” as with the corporate tax cuts, or fail.

Digitisation as development priority

Our broadband and digitisation efforts are disappointingly ineffective.

This is one instance where we should consider adopting China’s approach in developing broadband (except for state ownership) as a priority, driven by a strong industrial policy, “to play a leading strategic economic role and to deliver economic benefits to the Chinese people”.2 India professes similar objectives, but without the detailed planning to adopt broadband and to aid manufacturing. There are expectations about e-services without detailed, step-by-step proposals. In China the broadband network was formally recognised as public infrastructure and incorporated into government plans, and spectrum was not auctioned. The backbone is dominated by state ownership, and private investment in broadband for access in buildings and public facilities (airports, subways, highways) has to ensure fair access to all service providers as a matter of policy.

Two other developments have a bearing on this. One is the move to share spectrum and infrastructure. In July, the UK allowed public access to three bands assigned to businesses, organisations, and mobile companies for use by anyone at nominal cost.3 Another is the deteriorating state of BSNL and MTNL with their 185,000 employees, before they go entirely Air India’s way. As with tax cuts, the government can, after consultation and with participation from the private sector:

• Adopt a beneficial shared infrastructure policy with centralised/cloud Radio Access Networks (c-RANs: See https://www.researchandmarkets.com/research/w8ds5f/global_cran?w=12#summary)
• Give access to all available spectrum on payment based on usage,
• Retrain and use BSNL and MTNL as stakeholders for public security and public interest in consortiums with private operators.

Our interests would be well served at much lower cost by extending this approach to all resources for our collective benefit.

---

Shyam(no space)Ponappa at gmail dot com

1: For a good example applied to Aadhaar/PDS, see: Subhashish Bhadra and Varad Pande

https://indianexpress.com/article/opinion/columns/public-distribution-system-one-nation-one-ration-card-scheme-modi-government-6029134/

2: Krishna Jayakar and Liu Chun, 2014

https://www.researchgate.net/publication/267726214_The_Race_between_the_Dragon_and_the_Elephant_Comparing_China_and_India's_National_Broadband_Plans

3. https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/airwaves-opened-up-to-support-wireless-revolution

Fix Problems Before Complete Failure

We need some real solutions on the ground.  Examples - Jet Airways post mortem findings applied as the way forward for difficult NPAs; and a radical change of course as strategic participants in consortiums led by the private sector for BSNL and MTNL.

Shyam Ponappa  | July 4, 2019 

There is much talk about improving the big picture in India. What we really need, though, is some successes on the ground — some actual resolution of problems as building blocks for further success. Two instances are discussed below.

The first is a puzzling business failure: Jet Airways running aground in slow motion. It is already bankrupt, but unravelling the sequence could make such financial predicaments, of which there are many, more tractable. India’s once dominant airline slipped up and, inexplicably, was allowed to collapse. Over 16,000 employees are affected, and India’s airline services are in turmoil. One estimate of liabilities was Rs 26,000 crore.

Why didn’t lenders and government agencies use a combination of executive action, judicial process and bridge financing to keep the airline afloat? Did legal obstacles genuinely prevent resolution? Or was it irresolute collective action, including lenders being gun-shy because of the Non-Performing Assets (NPAs) and witch-hunts, or manipulation, complicity, or vindictiveness? Answers and corrective action could help fix other high-profile NPAs.

The second is a macro-level example from telecom: The mishandling of BSNL and MTNL. Since the 1990s, successive governments have repeatedly attempted to give a fresh impetus to these hapless telecom entities, while depriving them of what could actually have made them successful, namely, strong, informed leadership, with independence/non-interference. Consequently, BSNL’s accumulated losses amount to nearly Rs 1 trillion. This is nearly five times Jet Airways’, and double Air India’s accumulated losses until March 2018, the latter being roughly the size of India’s annual health budget.

Sorting out these infrastructure service problems is crucial because of their effect on everything from security, education and healthcare, to work and entertainment.  If BSNL and MTNL can change course constructively, we may be able to get them off their collapsing trajectory. Resolving this situation would remove severe impediments to our effectiveness and convenience, and an enormous drag on productivity. Connectivity and communications are so critical to social and economic capabilities, and our approach for decades has been so flawed and on a disastrous trajectory, that it is incomprehensible that we should be resolutely following this failing path without changing it. Now, the government is reportedly considering infusing thousands of crores into the same business, together with monetising land and assets.

What Is In The Public Interest?

The first step is setting appropriate objectives for BSNL and MTNL. What public-interest needs do they serve? The communications minister mentioned strategic areas like home and defence, and services for crisis management during times of disaster such as cyclones and floods. Two others that he mentioned appear unjustifiable: That they are national assets, and leading providers of free services. The first is just an assertion, while the second is inappropriate for commercial undertakings. It’s time to drop wishful thinking and take honest stock. For instance, after policy statements supporting spectrum sharing, regulations were framed to be so restrictive as to make it not worthwhile. Instead, policy-makers should set objectives that actually serve the public interest.

Thus far, we have had confused and absurdly contradictory objectives in practice: High government collections from auction fees and charges, while expecting ubiquitous, reasonably-priced, good-quality services. It seems self-evident that such contradictory objectives cannot possibly be achieved. The fact that high government charges deprive networks of funds and increase user costs are documented in the following reports:

“A Study of the Financial Health of the Telecom Sector”1 and 

“The Impact of High Spectrum Costs on Mobile Network Investment and Consumer Prices”2

Suggested Objectives

A genuine reset could be attempted on the following lines:

• Connectivity is the most essential objective. The ideal must be balanced with the practical, through trade-offs and phasing. The top cities and clusters have a major share of economic and social activity and are therefore a priority, of which 35-50 may be the fastest growing, with the next 50 requiring attention because of sheer size. For instance, Sweden’s phasing for 2025 is for 98 per cent of the population to have a minimum of 1 Gbps at home/work, 1.9 per cent at least 100 Mbps, and 0.1 per cent at 30 Mbps. But to the extent communications are available in our hinterland together with roads, water and sanitation, activity and prosperity will spread, with less pressure to migrate to urban centres. The longer term objective therefore needs to be good connectivity everywhere (within reason).
• An equally important objective is to safeguard the public interest, while ensuring good, reliable services at reasonable prices. The question is not whether to shut down BSNL and MTNL, but how to provide the right structuring and support including reskilling and continuing education, so that they participate effectively in consortiums and provide safety, security, and oversight in the public interest.
• A third is to avoid disrupting markets with unsustainable prices, including free services. Governments have done this repeatedly in telecom, airline and electricity services. It needs to stop. People need high-quality infrastructure for productivity, not shoddy services that undermine productivity and waste their time, pre-empting better services because of low pricing.
• A fourth is to actively ensure adequate capacity and quality in services to not constrain or waste public resources and potential. This is to avoid the shoddy services referred to above, that are bottlenecks that subvert alternatives as low-priced barriers to competition, through constraining revenues while draining public resources.
• Finally, we must embrace infrastructure- and spectrum-sharing. Sweden provides a model not only for the European Union, but also for India. Singapore had a model public-private partnership until some years ago, when SingTel, a passive anchor partner, took over OpenNet. We need mandatory active network sharing (including spectrum) through consortiums run by the private sector, with BSNL and MTNL as guardian anchor participants. A report by Stokab in March 2017,³ the City of Stockholm’s IT infrastructure company, provides details of an operator-neutral fibre and mobile infrastructure. 

Resolving connectivity problems that affect many people may be more easily doable than, for example, clearing the NPAs, or reconfiguring agriculture.

---

Shyam dot Ponappa at gmail dot com 

1: http://icrier.org/pdf/Working_Paper_380.pdf

2: https://www.nera.com/content/dam/nera/publications/2017/PUB_High_Spectrum_Costs_0517.pdf

3. https://www.stokab.se/Documents/Nyheter%20bilagor/Provins%20rapport%20mars%202017_en.pdf

Recapturing the Commons

Regulations that facilitate infrastructure with appropriate public resource use will enhance productivity.

Shyam Ponappa   |   March 7, 2019

Growth in the third quarter was disappointing, but there are signs of a cyclical recovery, with a Purchasing Managers Index for manufacturing at a 14-month high. For a significant upward shift of our growth curve, however, apart from lower interest rates, policy-makers have to be constructive. What might we wish for? Here are some suggestions.

Accept the reality that investible funds in India are insufficient for our needs. These include our stock and net inflow of capital, and profits available for investment. We can try to increase our productive capacity or choose business-as-usual, thereby staying below our potential. Why? Because our activities aren’t profitable enough to induce and sustain investment. We need investment —in hard infrastructure, such as transportation and logistics, electricity, water and sewerage, and communications, and in second-order infrastructure, such as security and law and order, health care, education and training, banking, finance and insurance. There’s also the need for reorganisation of markets and practices, e.g., in agriculture, infrastructure, and government procurement.

There’s little doubt that digital connectivity is invaluable for all these. While the imperative is clear, the question is how to orchestrate achieving the desired results.

The telecom operators, alas, have low profitability, inadequate network coverage, and too much debt. Continuing as before means subpar access and productivity for all. We are all hamstrung, and even more so in rural areas. Because of the expanse an7d scattered users there, connectivity entails much higher costs with lower revenue potential.

Self-Organising Infrastructure – A Conceptual Flaw Without Regulatory Support

Meanwhile, there are conceptual flaws in our approach. The National Optical Fibre Network (Bharat Broadband Network Limited or BharatNet) was conceived as a countrywide fibre backbone. The plan was for optical fibre links to 250,000 gram panchayat villages covering India’s approximately 600,000 inhabited villages. A major assumption, however, was that private operators would build access networks to villages and to users. This was unrealistic for a number of reasons. First, there’s the cost of covering sparse users over large expanses with low revenue potential. Second, the supportive regulations for wireless technologies to build the access networks were/are not in place. For example, even for the established 5 GHz WiFi range used globally for WiFi hotspots, restrictive policies meant that 5 GHz equipment could not be used effectively in India in urban or rural installations. This changed with new regulations for 5 GHz, but only four months ago in October 2018 (for details see https://organizing-india.blogspot.com/2018/11/a-great-start-on-wi-fi-reforms.html).

Other wireless technologies for intermediate- and last-mile links are still blocked, and need enabling regulations.

• The 700 MHz band: No operators bid for this given its high price, although it is very useful for covering distances of 5-10 km, and can penetrate walls and foliage. This band together with the 500 and 600 MHz bands could be used to connect gram panchayats to nearby villages. A study of inter-site distances in 14 states shows that most villages would be covered with this range (see Chart below).
  
  
  Study of Inter Site Distances - Gram Panchayats and Villages

• Source: https://tsdsi.in/wp-content/uploads/2019/02/Krishna-Ganti-Day-1-5th-Session-1.pdf

• The 500 and 600 MHz bands are allocated for TV, and therefore are part of the “tragedy of the unused commons”. Only a small fraction is used for broadcasting in India because of limited free-to-air TV and better alternatives. As they are earmarked for broadcasting, they are not used for telephony either.

• The 70-80 GHz band (E-band) is effective for short-range links covering more users at 3-4 km, but not permitted in India, although it is light-licensed in many countries with nominal fees, e.g., the USA, UK, Russia, and Australia. While ideally our regulations should align with global norms, there are exorbitant charges on operators (reportedly 37 per cent, plus corporate taxes), a debt overhang from spectrum auctions, huge investment needs, and relatively low revenue potential. Compelling arguments to let operators use the E-band with unlicensed access, with registry on a geo-location database to manage interference, to be reviewed after some years. The additional traffic will generate revenues from which government collections will increase.

• The 60 GHz (V-band for distances up to 1.6 km): the Cellular Operators Association of India (COAI) opposes making it licence-free as in most countries, and wants it assigned to operators for access and backhaul. For the same reasons as for E-band, operators could be allowed unlicensed access, with a review after some years.

Market Structure and Organisation

A larger problem is that legacy structural and organisational issues need concerted efforts to take requisite policy initiatives. This is perhaps a greater, more urgent need for ubiquitous connectivity.

Successive governments have struggled with revival plans for BSNL and MTNL, somewhat analogous to Air India and Indian Airlines in aviation. Governments have not provided sustained support for ambitious connectivity objectives. There is sometimes inadequate understanding of fast-changing, technically complex enterprises, and episodic attention is given to large enterprises that need timely capital- and skill-intensive decisions (and decision-makers in place), and the upgrading of skills and operating practices. BSNL and MTNL are declining, with bailouts, market disruption through price-cutting, and inability to deliver profits. This is a huge opportunity cost on citizens. However, it is conceivable that with appropriate leadership, and organisational and capital backing, these enterprises could contribute effectively to ubiquitous connectivity, rather than being a drag and/or a disruptive factor. This could happen, for instance, if an alliance were possible with private sector operators providing leadership, organisation and capital, while state ownership concentrates on safeguarding the public interest.

Bharti Enterprises’ Chairman Sunil Mittal has suggested an alliance with Vodafone for an optical fibre network. Bharti and Vodafone already have a joint venture, Indus Towers, providing passive infrastructure services to operators. If regulations enabled active infrastructure from a consortium including BSNL and MTNL, it would leverage the infrastructure while reducing the capital requirements, and increase delivery capability. The entire thrust of regulations could be oriented to facilitating service delivery, leveraging capital, equipment and human resources.

The regulatory approach should aim to facilitate access equitably to public resources that belong to citizens, and not to create obstacles.

---

Shyam (no space) Ponappa at gmail dot com

An Infrastructure Road Map

What should and should not be done by a new government in this crucial sector

Shyam Ponappa  | May 1

, 2014

Let's hope a newly elected government has the coherence and leadership to begin to deal right away with the mess in infrastructure, learning from what has gone wrong before. There are problems galore with our infrastructure, but a couple of examples stand out for what to look out for and avoid in future initiatives. There's little doubt that we must improve our approach to projects and undertakings in terms of functionality and efficiency, and that digital infrastructure is a key requirement.

While this article is on prioritising digital infrastructure, let us not underestimate the problems of deficient infrastructure. For sustained high growth, equally critical needs relating to power and logistics, with its interdependent linkages between transportation - by road, rail, air and water, and the associated holding/staging areas of terminals, airports and ports - need to be addressed with organisation and capital for capacity and de-bottlenecking.

One example is the multiplicity of schemes to register individuals, including the Unique Identification (UID) orAadhaar scheme, the National Population Register (NPR), the multipurpose national identity card, the voter identification card, and so on.1 Another example is the National Optical Fibre Network (NOFN) by Bharat Broadband Network Limited (BBNL). Accepting for the moment that these projects are well intentioned, there seem to be flaws right from the design stage, and on through execution. While the fallout from past errors has to be dealt with, it's most important to avoid these mistakes in fresh initiatives.

The UID and NPR projects apparently began without sufficient care in defining their purposes; they did not mesh seamlessly with each other and with other objectives and processes. This disjunction has carried through in implementing their design and execution.²

The NOFN aims to extend a countrywide network on the foundation of the existing fibre networks of state-owned entities Bharat Sanchar Nigam Limited (BSNL), RailTel and PowerGrid. This was to link over 245,000 village panchayats by the end of 2013, but is still undergoing limited trials. Given its magnitude, this requires vast capital investment that is unrelated to likely revenue generation in the short run. This critical infrastructure project is apparently behind time and over budget despite its reduced scope.3 That said, such monumental undertakings and changes can't be expected to go like clockwork, and the considerable efforts being made should eventually contribute to positive outcomes. For instance, a Confederation of Indian Industry report prepared with the help of KPMG in 2013 outlines possible business models and ecosystems in four areas, namely, education, health care, banking and agriculture.4 It's just that a thorough, comprehensive approach from the outset would be most beneficial.

In hindsight, what's lacking in both instances is proper organisation and co-ordination, the discipline of sound project management; and this is a missing piece in most areas of deficiency in governance, including infrastructure development. While a great deal of opprobrium is directed at corruption, there's little focus on these disciplines related to competent design, execution and delivery. Both depend on digital infrastructure. This is where real efforts must be focused to fix things, quite apart from dealing with corruption.

The "plumbing" of hardware, software, communications lines, and systems that enables effective use of information and communications technology is a critical necessity for our economic growth and well-being. While a balanced availability of energy, transportation and water supply/sewerage is required, in the short run, it is ICT that is likely to yield the broadest overall benefits and economic returns through multiplier effects, provided the others come up to minimum requirements. According to the World Economic Forum's (WEF's) Global Information Technology Report 2014 issued last week, the top 10 countries embracing information technology are Finland, Singapore, Sweden, the Netherlands, Norway, Switzerland, the United States, Hong Kong, the United Kingdom, and South Korea, in that order. The report includes a "networked readiness index" that ranks countries based on an assessment of their digital infrastructure and ability to use information and communications technologies to grow, foster innovation, and improve the well-being of their citizens.

Between 2012 and 2014, India dropped in networked readiness from 69th to 83rd out of 144 countries. By comparison, China dropped from 51st to 62nd, and Brazil from 65th to 69th. The WEF report says that India continues on its declining trajectory - and, among other things, that despite competitive markets (24th) and the availability of the latest technologies (58th), its difficult business environment and lack of digital infrastructure (119th) reflect in deprivation in education, resulting in limiting the creation of a wide skill base (101st). Our information technology and business process management (IT-BPM) sector is still largely oriented to external markets. For the financial year 2014, export revenues are expected to have grown 13 per cent to $86 billion. This is almost five times domestic revenues, estimated to have grown at 10 per cent to Rs 1.15 lakh crore (just over $19 billion).

Clear, convergent objectives and task-oriented processes and systems are not really part of our culture or vocabulary, barring sectors oriented to external markets like IT-BPM, and some corporations and professionals. There are, of course, rare individuals who excel, such as the former head of Delhi Metro, E Sreedharan, who maintained his reputation from the Konkan Railway and before that, Indian Railways. But it's not as if getting it right is a foregone conclusion for countries with a far better record of good systems and high-quality delivery - as evidenced, for instance, by Germany's increasing problems after turning away from nuclear energy. So, the incoming government needs to focus on starting to do things right, and that is the best way to create opportunities that can make the most of our demographics, and the potential of our large and increasing markets. It must view any scheme as part of an integrated, overarching system, and apply itself from the very beginning with care and understanding to defining the aims, objectives, and detailed processes so that they mesh and converge with what else is there.

---

                                                                    Shyam no-space Ponappa at gmail dot com

(1) An explanation of Aadhaar and NPR: http://egov.eletsonline.com/2012/04/there-is-actually-no-conflict-between-uid-and-npr/
(2) A discussion on systems aspects such as authentication and data security: "Do we need the Aadhaar scheme?", February 1, 2012, Business Standard (http://goo.gl/j3P5vf)
(3) "Reality check on the broadband dream", April 27, 2014, Business Standard(http://goo.gl/C9h4im)
(4) "Creating viable business models for inclusive growth through the National Optical Fibre Network": http://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG_CII_Broadband_Report_Final.pdf