How 'national' policies have ended up being 'anti-national'

One of the unintended consequences of trying to be “nationalist” or pro-aam aadmi is that your policies end up on the wrong side of common sense - and even a trifle anti-national in the end.

Take the current controversy over the bailout of Air India.

Our civil aviation rules allow foreigners to take up a 49 percent stake in domestic airlines, but foreign airlines cannot do so. Only non-airline companies can. The idea: to protect Air India from foreign competition.

What a foolish policy it turned out to be: if airlines cannot buy a stake in airline companies, will toothpaste companies do so?

[caption id=“attachment_182011” align=“alignleft” width=“380” caption=“Air India has been downed by poor governance and vicarious meddling by various governments, with the last-but-one civil aviation minister excelling in this business. Vivek Prakash/Reuters”]  [/caption]

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Thanks to this policy, Indian civil aviation is starved of capital and in a mess. So is Air India, the intended beneficiary from this policy.

Most people would be aghast if the government now decides that Air India is unviable and should be wound up. Everybody will scream about the loss of jobs, the destruction of a “national asset”, and how vested interests from the private sector have sabotaged the airline.

All of it will be true. Air India has been downed by poor governance and vicarious meddling by various governments, with the last-but-one civil aviation minister excelling in this business.

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But now consider the opposite: the consequences of not letting Air India die.

To keep it alive, the government will be offering bailout after bailout running into tens of thousands of crores over the next 10 years. (Over Rs 43,000 crore, by one reckoning).

To survive and overcome its bad image, Air India will be busy cutting fares in the short run. In the process it will damage the rest of the aviation sector - since they will be forced to keep fares at unviable levels.

In protecting Air India, Kingfisher and Jet will also go down in flames.

The government does not have the money to rescue Air India, so it wants to allow Sebi to allow foreigners to pick up a 26 percent stake in airlines without triggering the takeover code, which calls for a full open offer from the bidder. Sebi has said no, and this means the government will have to now allow foreign airlines to buy stakes in domestic airlines.

It will be forced to do what it does not want to. But it will be the right move, since the airline business is extremely tough and very difficult to make money in.

But look how we have ended up with this option: to protect Air India, we disallowed investment by airlines. Now, to rescue Air India, we will allow precisely this. Our “nationalistic” policy of keeping our airlines national has now led to a situation where all our airlines will go into foreign ownership. Even Indigo, the only profitable airline, is owned by NRIs, and not Indians.

This is, in fact, how we have turned all national sectors anti-national.

Petroleum: In petroleum, the current policy is dictated by the need to keep domestic prices low and subsidised - especially diesel, kerosene and cooking gas. So what has been the result? Since the policy is applicable only to public sector oil companies, all of them have become basket cases, and ONGC’s money is being used to bail them out.

What should ONGC be doing? To reduce our dependence on imported oil, ONGC should be using its profits to explore for more oil. But what we have ensured is that our import bill will keep going up, and ONGC's money is used to subsidise the _aam aadmi._ Our aam aadmi polices have made the country more dependent on imported oil (now over 75 percent of our needs), and forced Reliance to make money by exporting petrol and other products to tax-haven countries like the Bahamas.

But there’s another point: If the national policy is to force producers to subsidise the aam aadmi, why should only ONGC, Gail and Oil India bear the brunt and not Reliance Industries or Essar Oil? Why is Reliance busy reducing its gas output in Krishna-Godavari?

Our “national” policy has thus gone anti-national. We are helping foreigners make money on their oil by importing more of it, and our own oil and petro-products is being sold abroad for foreigners to benefit from. Or just not being produced at all.

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Coal: Our “national” policy is to sell domestic coal at less than one-third the international price so that power tariffs need not be raised. We have also retained Coal India’s monopoly, so that politicians can regulate energy prices to benefit themselves. It is meant to be a political milch cow - just like ONGC.

Coal India is now even expected to bail out the finance ministry by buying back its own shares - shares which the government sold only 15 months ago. The government will sell shares to make money, it will then force a buyback to again make money.

The net result of all this promoter-driven malfeasance has been largely negative for Coal India: to keep its own costs down and head above water, Coal India focuses on open-cast mining, and less on underground mining. This means it is finishing off the easy part of mining first. In future - when open-cast mines become less available or raise environmental concerns - we will see a steep rise in coal costs. It also means we have to open up more and more mines in future - just when eco-activists are raising cain.

[caption id=“attachment_182012” align=“alignright” width=“380” caption=“Coal India is the world’s largest coal company, but India is importing 134 million tonnes of coal this year. By 2017, we will be importing nearly 200 million tonnes. Guess who’s making money at our expense? Indonesia, Australia and other coal producers.”]  [/caption]

There has also been another consequence: since Coal India is a monopoly which can pass on its costs more easily to consumers, its employee unions can push through wage increases more easily, too. Monopoly is a double-edged sword. Recently, the company is said to have agreed on a 25 percent wage hike - at a time when the economy is going downhill. No prizes for guessing who will pay the bill: the consumers.

But that’s not all. When the need is to keep costs in check, the government wants to legislate a Mines & Minerals (Regulation and Development) Bill that will push up mining costs significantly. The idea is to protect people displaced by mining, but the proposed costs to be loaded on to the mining industry will end up undermining national self-sufficiency in coal.

Yet another consequence of the Coal India monopoly is an increase in coal imports. Coal India is the world’s largest coal company, but India is importing 134 million tonnes of coal this year. By 2017, we will be importing nearly 200 million tonnes.

Guess who’s making money at our expense? Indonesia, Australia and other coal producers.

And guess what we are doing? The power ministry has told Reliance Power, which has been given a coal block for captive use at its ultra mega power project, that it can’t use this coal for other power projects.

So a coal policy that helps Indonesia earn more and does not allow our own power producers to use the coal they already have is supposed to be in our national interest. Or is it anti-national?

Telecom: While conducting its 3G auction in 2010, the government allotted 3G spectrum to public sector companies Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL).

So that’s a favour to companies funded by taxpayers, right?

Wrong. What the government did was to give them spectrum they didn’t need and told them to pay the highest prices achieved during the 3G auction.

Net result: both BSNL and MTNL are in the sick bay and seeking bailouts . The bailouts has come, and bitten a hole in the budget.

The downside of having the Dayanidhi Marans and A Rajas manage our telecom ministry is clear: they were managing it for their personal or party’s benefit, not in the national interest.

And India’s biggest telecom company, Bharti Airtel, is happier doing business in Africa than in India.

But the real issue for public sector companies like BSNL is not that they are poorly managed, but that they are not allowed to manage at all.

According to a recent report submitted by former SAIL Chairman SK Roongta to the Planning Commission, public sector companies suffer from “over-governance” where they face all kinds of stringent vigilance norms, excessive regulation and ministerial meddling.

Says The Economic Times quoting the Roongta report: “Compliance to summons from various quarters comes at a heavy cost of time and money… Over-governance, in turn, promotes conservative, cautious and risk-averse organisational culture, with procedures being paramount and outcomes being secondary.”

Since public sector undertakings are financed from taxpayer resources, this is essentially a criminal waste of national resources. “Over-governance” in the public sector is also an anti-national activity of sorts.