Winning Can Equal Settling For Less

An accommodative approach can provide greater gains.

Shyam Ponappa   |   February 3, 2022

My previous article “Moving Beyond A Zero-Sum Approach”¹ dealt with how in most interactions, focusing on one’s own gains narrowly can lead to ignoring coordination, which then results in inferior gains. Coordinated solutions can be in the form of cooperation, collaboration, or accommodation. The reason is that while a situation may not have a win-lose (zero-sum) structure, if one party in seeking gains takes an approach as if it were win-lose, the areas for beneficial joint gains through collaboration or settlement are often ignored. This is likely to result in worse outcomes for all (a Nash Equilibrium in game theory). Conversely, if participants consider the interests of all parties and are willing to accommodate, the outcomes are likely to be better for all.

This can apply to battles of attrition as well. In resisting arbitral awards, it is a question of settling for a better outcome instead of being compelled to accept less/lose by seeking to enforce entitlements. It may be less damaging in our overall interests to seek a settlement, even if we believe we are right.

A review by the government of its committed direction is warranted in some areas, taking stock of the facts afresh to decide what is best for us. One of these is resisting the arbitral awards to Devas, because this is a battle of attrition, and the risk of attachment and seizure of government-owned assets abroad will continue. The requirement is not on principles, of not relinquishing a position once taken, or of establishing whether or not there was fraud. It is the issue of continuing national waste of attention and time on resisting international awards, diverting these away from actual governance needs. The awards are there, and enforcement will be pursued. The reputational damage to India from attachments and seizures will continue, as will the waste of time and money on resistance, until there are diminishing returns for the claimants.

In such situations, alternative strategies to be considered include possible accommodative responses. Should India resist claims indefinitely in these circumstances, considering the likely outcomes and the negative repercussions, especially to developing its manufacturing capabilities? Or should it consider possible ways to settle this matter for less than foreseeable costs, and shift its attention and energies to constructive activities in other areas?

The diagrams explain this graphically. Chart 1 (from my previous article (1)) is the example of Company A acquiring a stake in Seller S for an alliance. Chart 2 highlights the potential for gain from a collaborative or accommodative/coordinated outcome, as explained below.

The potential for gain is in the shaded area between the “bliss points” and the lowest achievable benefits, comprising: (a) S1, the Seller’s desired highest price for selling a lower stake;( b) A1, the Acquirer’s desired lowest price for the highest stake; and (c) N, the lowest achievable outcome.

The minimum-gains for both are at the origin at N, the Nash Equilibrium, which is the likely result if both sides pursue their respective interests to the exclusion of the other’s. However, if both consider mutual benefits through collective gains, both will gain as they move away from N towards the contract curve S1 to A1. The gains are maximised at any point on the contract curve.

For the arbitral awards, the ideal requirement is for an accommodative agreement on an amount or arrangement that leaves both sides better off, rather than litigating indefinitely, having already been contending for the last 10 years.

Telecom As Infrastructure

A second area that deserves recall is the The National Telecom Policy-1999 (NTP-99). Briefly, in 1994, regulations required telcos to bid for licences. Most won with high bids, some had to forego their licences, and all were stuck with no cash flows to pay licence fees. Cash flow constraints limited their networks and the ability to lower tariffs to attract customers. Based on an accommodative consultation between the government, the telcos, banks, and other experts, and thereafter the public, a revenue-sharing arrangement was introduced for licence fees. It was faulted for being prepared without Parliamentary debate, and for its lack of transparency, with some people charging that it was a sell-out to telcos. Initially, the revenue share was set too high until 2003, when a lower percentage share and reduced charges stimulated enormous growth and proliferation in mobile services, until 2011. At that point, the 2G scam broke the trend, followed by retrospective adjusted gross revenue demands, and it hasn’t recovered since.

In terms of process, the government initiated a coordinated arrangement in consultation with the telcos and other industry representatives and experts, and then with the public. The outcome after some years, after initial missteps because of overcharging by the government, was a remarkable success.

This is the process that deserves consideration, with improvements such as for Parliamentary consultation followed by public consultation at the appropriate time, and legal and regulatory inputs. It is in lieu of the committed course of extracting cash from telcos through auctions, while expecting them to make massive investments to provide state-of-the-art services.

An objective consultation and design process by a multi-disciplinary group led by the Ministry of Communications and Information Technology is required, with coordination through the Prime Minister’s Office as for NTP-99 drawing on other government departments, industry and experts, with assistance from behavioural science facilitators for work-outs. The scope to be covered is everything from network infrastructure, spectrum, and new technologies, with a systems approach using objectives-oriented process design.

Ideally, apart from techno-economic, civil administration and managerial aspects, behavioural science inputs to assist groups in addressing inter-departmental resolution for overall gains needs to be made a part of the consultation process.

Adopting an approach geared towards the benefit of society shifts the focus away from the adversarial, competitive perspective of fixating on defensive strategies that result in least gains, and opens up to greater benefits through group effort. This is what we should be aiming for to improve communications infrastructure.

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shyamponappa@gmail.com

1: https://organizing-india.blogspot.com/2022/01/moving-beyond-zero-sum-approach.html

2: GE's Work-Out Process

Unlike conventional methods of teaming, whereby problem-solving or “task” teams meet for short periods over several weeks or even months, the heart of General Electric Work-Out is its efficient, focused, multiple-day work sessions.  These are carefully designed and closely facilitated by one or more of our GE Work-Out-experienced Senior Associates.

https://thinkgagnonassociates.com/core-capabilities/ge-work-out

Gagnon Associates did the first workouts for/with Jack Welch at GE. 

How to Revive Auto and Telecom Sectors

Illustrative action in key economic areas. 

Shyam Ponappa    |    October 1, 2020

The government can take some immediate steps to assist economic recovery. This involves: (a) Policies for citizens to benefit from public resources (land, minerals, spectrum, water), not exploiting them for any government, person, or special interest (b) Systematic, end-to-end design and execution to completion (c) Cooperation and participation in organisation. The examples below are for automotive manufacturing and communications.

The Automotive Sector

The drop in automotive sales from over two years ago indicates considerable loss of momentum. Figures for vehicle registrations from FY2018 demonstrate this. (See table).

The Covid lockdowns constrained sales even further. Vehicle registrations in August 2020 were 1,188,087, a reduction of 27 per cent from August 2019 (1,623,218). Meanwhile, Harley-Davidson announced the closure of its plant in India, and Toyota expressed concerns about high taxes. A year ago, Ford moved most of its manufacturing into a joint venture with Mahindra. Even in a business-as-usual cycle, because of this sector’s contribution to manufacturing and across sectors, there are legitimate expectations of government support. This is to mitigate negative effects cascading through the economy, the aim being to prevent job losses and reduced employment prospects.

The loss or shift of focus from India to other manufacturing locations warrants urgent action. Tax cuts after shedding ideas such as treating small cars as luxury goods are necessary, but not sufficient. Reducing goods and services tax (GST) from 28 per cent to 12 or 5 per cent is just one step. The revenue deficits can be monetised by printing currency, to be extinguished over time through increased tax collections from higher sales. A vehicle scrappage policy at this time may not be opportune, as it may be ineffective, and can cause undue hardship.

Freeing Our (Manufacturing) Potential

Other measures can be taken besides tax cuts. Because there are so many, the emphasis here is on elements of industrial policy. It does not, however, minimise the most critical issue of social policy, which has been undermined as much as in 1975 during the Emergency, and desperately needs amends.

Reliable infrastructure is one requirement to drive manufacturing productivity and broader economic potential. Manufacturing and service enclaves must be made to work, with stable infrastructure and social conditions. This is essential for local companies to thrive, as well as to attract international investment, and to generate spillover effects.

Past experience suggests we should focus on fewer, well-conceived undertakings in the near term, while building for the longer term, like how telecommunications grew from 2004-2011, the national highways development projects from the late 1990s, and the earlier success of the Anand Cooperative.

Model SEZs

Take, for example, the over 200 special economic zones. Is it not in our interest to make a real success of two or three pilots as intermediate objectives, achieving a few that work, instead of many that do not, and then seek replication?¹ After unbiased selection of locations (the most difficult part), governments (Central, state and local), enterprises, and citizens have to be persuaded to get them to work right, to have them built up and serviced with stable infrastructure and governance, including competitive tax policies, not getting sidetracked by real estate speculation or assuaging political constituencies. Only then would it make sense to replicate them based on the experience and results.

While state and local regulations and practices affect these, the overarching laws and policies necessarily emanate from the Central government. Also, multiple government agencies are involved in any significant infrastructure policy, as with telecommunications, which requires national policies on spectrum allocation and assignment, rights of way and other regulations, standardisation, dispute resolution and penalties.

Additionally, the laws have to be made to work. The widely held fiction that making a statement is tantamount to achieving all that is stated simply has to be given up.

Taxes on Public Resources

The real issues here are stable policies, taxes, and contracts, resulting in investments that succeed. The recent arbitration award for Vodafone against the government’s claim of taxes with interest of over Rs 20,000 crore is, one hopes, an end to proceedings conceived by the United Progressive Alliance and pursued by the National Democratic Alliance. Allowing for retrospective changes means that any agreement can be changed. It is in our interest to accept this award as a lesson in upholding contracts, avoiding retrospective changes, and reviewing and modifying laws prospectively.

An equally unreasonable litigation pursued by successive governments since 2005 is the adjusted gross revenue (AGR) case for the government’s revenue share from telecom operators. The Supreme Court’s 2019 ruling upholding the previously overruled government claim is very damaging for overall economic prospects. Parliament needs to frame legislation that defines AGR as the TDSAT ruled in 2015. The government could then apprise the Supreme Court of the change in policy, and renounce its claims. Together with accepting the arbitration award, this will not only change the prospects for telecom and broadband, but for investments and prospects across the board, although the rest remains to be done to show that it pays to invest in India, by investments being profitable. Perhaps the government will consider acting on these steps.

Measures such as regulations for spectrum bands of 60GHz, 70-80GHz, and 6GHz, are easier to address for immediate results. The government can formulate the regulations as was done for 5GHz, using the US FCC model with some modifications. Then, there are the policies only the Central government can initiate, on issues such as consortiums for shared infrastructure and manufacturing, that need to be given shape and form to make them realities.

Above all, we need the powers-that-be to give up their durbar-style of operation, and start applying the principles of cooperative action and shared infrastructure with all stakeholders, to improve collective outcomes.²

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Shyam Ponappa at gmail dot com

1. SEZs failures: (a) Reuben Abraham: India needs to copy China's Special Economic Zones better 

(b) Meir Alkon, Princeton: Do SEZs Induce Developmental Spillovers? Evidence from India's States

2. Elinor Ostrom: Governing the Commons, Cambridge University Press, 1990.