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Customer rules - Views on News from Equitymaster
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  • May 14, 2003

    Customer rules

    Let's digress a little from the state of the markets today, and instead dwell on the recent rollback of tariffs of fixed line operators, namely BSNL and MTNL. While as a consumer it is a time to rejoice, at the same time as a citizen of India one is aghast at the way our policymakers have to make way for politics.

    The newspapers have reported that as a result of the rollback in tariffs BSNL may lose Rs 35 bn. However, in our view that is not the concern. When India chose to liberalise, it not only meant that MNCs could invest and set up base in India, it also meant an increase in quality of services and products that consumers are offered. And sure enough, after more than a decade of our journey into liberalisation, one can see more product and service hoardings than ever in not only metros but in smaller towns too. Each sector is very competitive and producers are going out of their way to get consumers. And the Indian consumer has shown increased sophistication over the years.

    In this light, why the tariffs should have increased at all, in the first place. When private players, especially mobile and WiLL are offering services at very competitive rates, the TRAI asks them to explain how they can afford to charge such low tariffs. It is not as if the government is concerned about the private players bottomline or well-being, but rather its own PSU jewels. When the tariffs had increased, in some areas it became more worthwhile to switch to mobile or WiLL as they proved to be cheaper. So, the fear was that government owned fixed line operators would bleed if consumers gave them a shrift.

    But at the same time, policy makers realised that fixed line tariffs needed to support the existing cost structures, as revenue pies were shrinking. So in effect, they were forced to hike rates. But competitive rates from private operators queered the pitch and raised TRAI's angst. So we had a scenario wherein, instead of welcoming competition, show cause notices were issued to private players.

    Do not think for a minute that the article is in favour of private players or any such thing. Not at all. Rather the question is why should the consumer pay for bloated cost structures of state owned units. While the productivity in state owned enterprises has seen a sea change in the last decade, these companies still need to cover a lot of ground to really compete with private players on efficiency parameters.

    That is all the more reason for us to support divestment. May be not in all sectors, but a majority of them. The business of the government is to run the country efficiently, and not running businesses. It is not its core competence. Going forward, as divestment minister Mr. Arun Shourie has rightly put it, if divestment does not take place, even profit making companies will bleed (as we have seen in the case of MTNL) as private competitors, whose entire focus is on efficiencies and earnings, will outsmart companies run by bureaucrats.



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