This is a brilliant opinion article I have read in a long time. Explains how politicizing 2G and Coal lead to rise in prices.
Vinod Rai’s “notional loss” transforms into higher consumer prices, subsidies….
Vinod Rai, the ex-CAG, will now get to see the consequences of his politicized reports. He will get to see how wrong he was in his “notional loss” theory. How this notional loss is transforming into higher consumer prices (a huge burden on the poor) and higher subsidies (a burden on the government). In the end, he will realize that at a “net” level, there was indeed “zero loss” that the government and the nation suffered in both coal and 2G. He will realize how little he achieved as a CAG after all. And in all of this, he will prove that the CAG is nothing but an accountant, something that he didn’t feel happy accepting.
If you missed all that’s been happening in telecom and coal-related sectors, here’s a summary. Telecom tariffs have gone through the roof. Most telecom companies have increased “voice” rates by 50 to 100% over the last couple of years. The days of the half-paise-per-second rates are over. Pricing at those levels is simply not affordable any longer, what with huge spectrum fees being the new way of doing business in telecom. There has also been a concomitant reduction in competition, first as the Supreme Court canceled Raja-issued licenses, and then as those who lost refused to bid preferring to simply exit the politically destroyed sector. Lesser competition always leads to higher consumer prices. Then there is also the burden of 3G license fees which telcos have to reckon with. Fees so high that not only have 3G prices become unaffordable, but 2G also. In hindsight, it was silly of Vinod Rai to benchmark 2G on irrational 3G prices, and call it a notional loss. Thanks to Vinod Rai, the whole telecom sector is in a spin now. Profitability seriously compromised. Debt piles visible afar and loan re-structurings quite the norm. What was essentially a case of last-mile corruption has ended up becoming a monster that strangled the entire sector.
Vinod Rai’s poor wisdom has cost the country dearly. Banks are facing the brunt of debt non-repayments and consequent re-structurings. Thousands of employees have lost their jobs. Most importantly, the poorest of the poor, the dhobis, electricians, locksmiths, vegetable vendors – those who made their mobile phone a substitute for a “kholi” or “shop” otherwise required to do business – have been left high and dry. Tele-density has started falling. Between them, telcos have lost nearly 50 million subscribers. Agreed, they were mostly 2nd numbers or maybe even defunct numbers, but still, a reduction in numbers doesn’t augur well for the industry. Company valuations which were linked to subscriber numbers, have started to fall, with the earliest operators, Airtel and Voda suffering the most. It’s a matter of time before the “culling” of customers extends to the fringe sections of our society. They will be pushed back into oblivion and poverty, with no recourse to business opportunities and hopes for an improvement in quality of life. Two years after Vinod Rai played his accounting tricks, the telecom sector has gone from being India’s show-piece to one of its worst performing sectors.
Sectors dependent on coal are in no better shape. Coal prices are going through the roof, as the country is having to rely more and more on imports, a strange situation considering that India is one of the biggest beneficiaries of god’s gift to mankind. But coal mining is in the pits (no pun intended), first with exploitation being limited largely to one company (CIL) and second, with the private players in cement, steel, electricity and fertilizers being made to pay top dollars for their mines. Nothing comes free Mr. Rai, and all that the government “appears” to lose is not really a loss. That loss could also be called “sharing of wealth”. Or “inclusive” growth.
Today’s papers report how electricity tariffs are expected to shoot through the roof, as coal prices climb to higher levels. Fertilizer prices are also expected to follow suit. Cement prices are already up by Rs 15-25 a 50-kg bag. Steel prices are also up by as much as Rs 1400 per tonne, as the full impact of Vinod Rai’s reports is felt on foreign exchange rates, electricity prices and railway freight rates. Vinod Rai should be happy that the country’s exchequer will make tons of money. So what if the corporate sector suffers.
If he had been a little wiser, Vinod Rai might have realized that along with it’s “topline” (auction revenues), the government’s “middle line” would also increase proportionately. The middle line here is the subsidies budget. The government will have to pay a lot more for fertilizer subsidy, since it has no intention of burdening the farmers with higher costs. It will also lead to higher electricity subsidies, since most governments like to keep electricity prices low, a habit they find politically rewarding. State Electricity Boards have increased prices by 15-30% over the last year, but that’s not enough. They are having to provide more subsidies as well. Here’s an interesting fall-out of the CAG’s reports – the notional loss has shifted from the central government’s books to the state governments’ (who have to bear the higher subsidy bill)! If only the opposition had thought of this earlier….
What’s been the net impact on the bottomline of the government? Zilch. Higher toplines (auction revenues) yes…..but higher costs (subsidies) as well. But this was perhaps much too evolved for the Harvard educated Rai. Kapil Sibal was right after all – in net terms, the government suffered “zero loss”.
Vinod Rai did not realize that the private sector made no “windfall” gains as a result of cheap resources. Actually, the citizens made the windfall gains. Cheaper resources leading to cheaper consumer prices is a philosophy that the Congress is comfortable with. The BJP perhaps prefers higher government earnings and higher consumer prices (a more elitist way of governance). The two parties have different electoral constituencies. The Congress is much more focused on the rural and urban poor; the BJP on the urban, middle class “baniya” class. Thanks to Vinod Rai, what should have been an interesting debate on the styles of the two parties, has ended up becoming a reason for Parliamentary lock-down, policy paralysis, and a very fundamental change in India’s economic model. From socialism to capitalism.
For we are becoming an out and out capitalistic country where all resources are priced at market rates. Auctions are conducted in a “revenue maximizing” manner, something that favors the big players. The smaller guys – the Sunil Mittals, the Kishore Biyanis, the Captain Gopinaths and other beneficiaries of Manmohan Singh’s 1990s reforms – can forget their dreams. It’s soon going to be back to the Tatas, the Birlas and the Ambanis. This is the new capitalistic India, where the rich will become richer and the poor poorer. The Left may want to think about this.
The real truth is that Vinod Rai’s “notional loss” is now transforming into higher consumer prices and higher government subsidies. So one form of loss (auction revenues) is converting into another form of loss (subsidies). This is Rai’s lasting legacy. A book-keeping jugglery. Vinod Rai has finally learnt that the CAG is nothing more than a book keeper, an accountant. Does this make him a Seshan? Far from it….
P.S. I have a request(yes) to readers, do not make this a Congress Vs. BJP debate and make sure you read through this instead of blindly typing. I wish to debate the article, not your inclement towards Modi or BJP.
Vinod Rai’s “notional loss” transforms into higher consumer prices, subsidies….
Vinod Rai, the ex-CAG, will now get to see the consequences of his politicized reports. He will get to see how wrong he was in his “notional loss” theory. How this notional loss is transforming into higher consumer prices (a huge burden on the poor) and higher subsidies (a burden on the government). In the end, he will realize that at a “net” level, there was indeed “zero loss” that the government and the nation suffered in both coal and 2G. He will realize how little he achieved as a CAG after all. And in all of this, he will prove that the CAG is nothing but an accountant, something that he didn’t feel happy accepting.
If you missed all that’s been happening in telecom and coal-related sectors, here’s a summary. Telecom tariffs have gone through the roof. Most telecom companies have increased “voice” rates by 50 to 100% over the last couple of years. The days of the half-paise-per-second rates are over. Pricing at those levels is simply not affordable any longer, what with huge spectrum fees being the new way of doing business in telecom. There has also been a concomitant reduction in competition, first as the Supreme Court canceled Raja-issued licenses, and then as those who lost refused to bid preferring to simply exit the politically destroyed sector. Lesser competition always leads to higher consumer prices. Then there is also the burden of 3G license fees which telcos have to reckon with. Fees so high that not only have 3G prices become unaffordable, but 2G also. In hindsight, it was silly of Vinod Rai to benchmark 2G on irrational 3G prices, and call it a notional loss. Thanks to Vinod Rai, the whole telecom sector is in a spin now. Profitability seriously compromised. Debt piles visible afar and loan re-structurings quite the norm. What was essentially a case of last-mile corruption has ended up becoming a monster that strangled the entire sector.
Vinod Rai’s poor wisdom has cost the country dearly. Banks are facing the brunt of debt non-repayments and consequent re-structurings. Thousands of employees have lost their jobs. Most importantly, the poorest of the poor, the dhobis, electricians, locksmiths, vegetable vendors – those who made their mobile phone a substitute for a “kholi” or “shop” otherwise required to do business – have been left high and dry. Tele-density has started falling. Between them, telcos have lost nearly 50 million subscribers. Agreed, they were mostly 2nd numbers or maybe even defunct numbers, but still, a reduction in numbers doesn’t augur well for the industry. Company valuations which were linked to subscriber numbers, have started to fall, with the earliest operators, Airtel and Voda suffering the most. It’s a matter of time before the “culling” of customers extends to the fringe sections of our society. They will be pushed back into oblivion and poverty, with no recourse to business opportunities and hopes for an improvement in quality of life. Two years after Vinod Rai played his accounting tricks, the telecom sector has gone from being India’s show-piece to one of its worst performing sectors.
Sectors dependent on coal are in no better shape. Coal prices are going through the roof, as the country is having to rely more and more on imports, a strange situation considering that India is one of the biggest beneficiaries of god’s gift to mankind. But coal mining is in the pits (no pun intended), first with exploitation being limited largely to one company (CIL) and second, with the private players in cement, steel, electricity and fertilizers being made to pay top dollars for their mines. Nothing comes free Mr. Rai, and all that the government “appears” to lose is not really a loss. That loss could also be called “sharing of wealth”. Or “inclusive” growth.
Today’s papers report how electricity tariffs are expected to shoot through the roof, as coal prices climb to higher levels. Fertilizer prices are also expected to follow suit. Cement prices are already up by Rs 15-25 a 50-kg bag. Steel prices are also up by as much as Rs 1400 per tonne, as the full impact of Vinod Rai’s reports is felt on foreign exchange rates, electricity prices and railway freight rates. Vinod Rai should be happy that the country’s exchequer will make tons of money. So what if the corporate sector suffers.
If he had been a little wiser, Vinod Rai might have realized that along with it’s “topline” (auction revenues), the government’s “middle line” would also increase proportionately. The middle line here is the subsidies budget. The government will have to pay a lot more for fertilizer subsidy, since it has no intention of burdening the farmers with higher costs. It will also lead to higher electricity subsidies, since most governments like to keep electricity prices low, a habit they find politically rewarding. State Electricity Boards have increased prices by 15-30% over the last year, but that’s not enough. They are having to provide more subsidies as well. Here’s an interesting fall-out of the CAG’s reports – the notional loss has shifted from the central government’s books to the state governments’ (who have to bear the higher subsidy bill)! If only the opposition had thought of this earlier….
What’s been the net impact on the bottomline of the government? Zilch. Higher toplines (auction revenues) yes…..but higher costs (subsidies) as well. But this was perhaps much too evolved for the Harvard educated Rai. Kapil Sibal was right after all – in net terms, the government suffered “zero loss”.
Vinod Rai did not realize that the private sector made no “windfall” gains as a result of cheap resources. Actually, the citizens made the windfall gains. Cheaper resources leading to cheaper consumer prices is a philosophy that the Congress is comfortable with. The BJP perhaps prefers higher government earnings and higher consumer prices (a more elitist way of governance). The two parties have different electoral constituencies. The Congress is much more focused on the rural and urban poor; the BJP on the urban, middle class “baniya” class. Thanks to Vinod Rai, what should have been an interesting debate on the styles of the two parties, has ended up becoming a reason for Parliamentary lock-down, policy paralysis, and a very fundamental change in India’s economic model. From socialism to capitalism.
For we are becoming an out and out capitalistic country where all resources are priced at market rates. Auctions are conducted in a “revenue maximizing” manner, something that favors the big players. The smaller guys – the Sunil Mittals, the Kishore Biyanis, the Captain Gopinaths and other beneficiaries of Manmohan Singh’s 1990s reforms – can forget their dreams. It’s soon going to be back to the Tatas, the Birlas and the Ambanis. This is the new capitalistic India, where the rich will become richer and the poor poorer. The Left may want to think about this.
The real truth is that Vinod Rai’s “notional loss” is now transforming into higher consumer prices and higher government subsidies. So one form of loss (auction revenues) is converting into another form of loss (subsidies). This is Rai’s lasting legacy. A book-keeping jugglery. Vinod Rai has finally learnt that the CAG is nothing more than a book keeper, an accountant. Does this make him a Seshan? Far from it….
P.S. I have a request(yes) to readers, do not make this a Congress Vs. BJP debate and make sure you read through this instead of blindly typing. I wish to debate the article, not your inclement towards Modi or BJP.
