Author: Monica Samuel

BSNL: A Socialist Hangover That Continues To Cause Headaches

Bharat Sanchar Nigam Limited (BSNL), the state owned telecom company, is in dire straits. Though the company is still the largest provider of fixed telephony in India owing to its low cost packages, rural penetration, and pan-India coverage and the fifth largest provider of mobile telephony, it is fast losing ground to private operators who are better able to engage customers, leverage new technology for promotions and marketing, and offer attractive deals to Gen Y.

BSNL came into being in 2000 as a result of the corporatization of the Department of Telecommunications (DoT). The company enjoyed a monopoly and profited despite poor quality services, operational inefficiencies, and laggard decision making. The entry of private players in subsequent years however busted that business model.

marketshare BSNL and MTNL being Public Sector Undertakings (PSU) were exempted from competing with private operators on spectrum. In 2008, BSNL and MTNL were allotted 3G spectrum ahead of auction though they were later expected to match the winning bid in their respective areas. BSNL was also exempted from paying 2G spectrum charges of ₹1,650 crore earlier in view of its rural and social obligations.

Bottomless Pit

BSNL’s incurred loss in 2012-2013 amounts to ₹8,190 crore. The steep fall in profits over the last three years is attributed to:

  • high employee cost (49% of revenue versus the industry average of below 5%)
  • high customer attrition owing to poor customer service
  • 3G and Broadband Wireless Access (BWA) spectrum purchase (₹18,500 crore)
  • inadequate marketing
  • implementation of revised pay scale (₹2,900 crore)
  • tax liabilities (₹392 crore)

BSNL also had ₹5,231 crore as outstanding dues from customers as on 30 November, 2011 of which the company recovered ₹988 crore in the same period. Its cash reserve fell to ₹2,500 crore in 2010-2011 from a lofty ₹30,000 crore two years back.

Its not that BSNL is not trying. It hired SBI Capital in 2012 to help it raise a long-term loan of ₹12,000-₹15,000 crore for 5-7 years. The company also plans to generate revenue by leasing out its towers and network bandwidth, starting a telecom equipment manufacturing project, offering broadband connectivity to schools, leasing its land bank for commercial use, and setting up Wi-Fi hotspots across the country.

The company is expected to take remedial steps suggested by the Sam Pitroda committee created on the PM’s suggestion in 2010 to turnaround its loss. However, much of that is only on paper. Some of the pills are likely too bitter to swallow for the babus. It is yet to:

  • undertake a strategic stake sale, or
  • reduce its 3 lakh staff by a third, or
  • sell 30% of the company in an initial share sale

The Future of BSNL

The Ministry of Telecom plans to present multiple suggestions to the Group of Ministries (GoM) to revive BSNL’s fortune. These include:

  • government bearing the cost for keeping spectrum beyond 4.4 MHz in GSM and 2.5 MHz in CDMA bands
  • providing a ₹23,000 crore bailout for BSNL and MTNL
  • getting the Centre to bear the one-time spectrum fee for state-owned telcos
  • refunding part of the 4G airwaves costs as the PSUs had surrendered this spectrum in 2011

Private GSM and CDMA operators object to the financial support for BSNL and MTNL as “not permissible” because “this would contravene all tenets of policy, fair competition and level playing field”. That’s a perfectly logical expectation.

BSNL is a text-book example of why the government should not stick its nose where it doesn’t belong. Private telecom operators have done to cheap, pervasive, universal access to basic telephony in 10 years what the government owned DoT, and now BSNL, couldn’t do in 50 years. But how do we reward this incompetence? By throwing good money over bad, by refusing to hold the bureaucrats running the show responsible, and by agreeing to every demand of the unions. Can we just stop pretending that this dog has a fight and just take it to the woodshed? Tax payers would like to know!

 

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National Food Security Bill: Making India Poor

The National Food Security Bill (NFSB) led to an uproar in the Lok Sabha when it was tabled on May 6. True, it doesn’t take much for our esteemed parliamentary members to get agitated but this time, they have a point. With NREGA and similar “empower the poor” schemes failing to deliver owing to rampant corruption, is another scheme really required? Worse, if the NFSB is passed, India’s fiscal deficit will get worse, a fact that’s already impacting India’s allure as an investment destination.

Opposition parties believe that the NFSB is a smokescreen for UPA to divert attention from the corruption charges levied at the party. They also claim it’s a move to gratify voters as the 2014 elections come close. Whether that’s true or not, the NFSB has holes that make it flawed from the start.

Food Security Bill

First, the NFSB is not new. It’s been dug out of its grave by the UPA government after a spell of 4 years. It was passed by the Cabinet in March 2013 but faced flak from opposition in the Lok Sabha.

If the NFSB is passed, India’s poor amounting to 800 million people (two thirds of the country’s population) will have the legal right to receive 5 kilograms of food grain per person at fixed rates of ₹3 (rice), ₹2 (wheat) and ₹1 (coarse grains) per kilogram. Meanwhile, the Antodaya Anna Yojana (AAY) meant to protect 2.43 crore poorest of poor families will continue with the supply of 35 kg food grains per month per family.

Economic implications of National Food Security Bill

NFSB has not received a favorable response from any quarter – media, corporate, or business. That’s not over a disinclination to help the poor but over the practicality of implementing a scheme that relies on the same flawed infrastructure that has stalled previous schemes.

Secondly, the NFSB was proposed at a time when India’s growth rate was almost 9%. Today it’s struggling to touch the 5.2% mark promised by finance minister, P Chidambaram. If it falls any lower, India’s status in the investment market would be rated “junk.” For 2013-14, the food security bill will cost the exchequer Rs. 1,24,502 crore, an extra expenditure of Rs. 44,711 crore after deducting existing food subsidies and adding infrastructure, transportation and other costs allied to the NFSB. NREGA’s annual cost is only a little less.

Thirdly, the government’s involvement via NFSB could drastically raise the amount of food grain procured from the market, leading to distortion of agriculture prices. The Bill will add to the total subsidy burden that’s already about 2.4% of the GDP. Chidambaram hopes to cut the fiscal deficit to under 4.8% of GDP in 2013-14 from around 5% in 2012-13. NFSB will certainly not help.

fiscal deficit percentage GDP India

Can India afford to decelerate its growth rate any further? As S.A. Aiyer’s calculated in his 2009 paper Socialism Kills: The Human Cost of Delayed Economic Reform in India, India has already failed to prevent 14.5 million infant mortalities, produce 261 million literates and empower 109 million poor because of delayed economic reform. The need of the hour is not NFSB but reform that drives growth – the only factor that effectively helps move above the poverty line.

A scheme to feed the poor does not address the core problem. It will only end up making greedy middlemen, politicians and bureaucrats richer. The UPA knows this too. Then why focus on a scheme rather than the root cause of implementation failure? Why not focus on preventing stored food from going to rot? Why not optimize distribution channels to bring what is already available to the poor instead of creating new administrative burdens? Without fundamental changes at the ground level, NFSB is doomed.

 

 

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NREGA – A Failure No One Accepts

The National Rural Employment Guarantee Scheme (NREGA) scheme that was launched by the Central Government in 2005 was a noble initiative but badly implemented. Like many other rural empowerment schemes, NREGA has become a swindling racket for corrupt politicians, bureaucrats, and contractors to fill their pockets even as the intended beneficiaries bemoan delayed payments and rampant bribery.

NREGA – What’s it about?

Shovels readyNREGA, later renamed to Mahatma Gandhi NREGA (which was pretty much the only rework done on it), was started in 2005 to legally ensure employment of rural people for at least 100 days every year. The scheme was open to any rural household with adult members willing to do unskilled public work, using manual tools, for the minimum wage of Rs.130 per day (2009).

The central government rolled out the scheme to state governments, ultimately making the scheme active across 635 districts in the country through the Gram Panchayats.

How does NREGA work?

  1. Rural household members register in writing or verbally at Gram Panchayat, free of cost.
  2. After verification, Panchayat issues Job Card to worker; expectedly within 15 days of application submission.
  3. Worker may specify preference of days and time employment is sought; minimum 14 days.
  4. Panchayat must guarantee employment within 15 days or pay unemployment allowance.
  5. Worker is granted work within 5km radius or paid 10% extra beyond the parameter.
  6. Wages must be paid within a week and not later than 2 weeks.
  7. Permissible works predominantly include water and soil conservation, afforestation and land development works.

NREGA – The fallout

NREGA is under criticism for corruption as well as creating detrimental secondary effects in poverty stricken areas. Since the scheme mandates “manual unskilled” labour, undertaken rural projects suffer in quality. Furthermore, workers learn nothing new; there is no skill upgradation that makes them more employable down the road.

A 2013 Comptroller and Auditor General (CAG) report on NREGA reveals huge gaps in implementation:

  • only 30% of 129 lakh approved projects worth over Rs 1.26 lakh crore completed
  • rural households’ work dropped from 54% to 43%
  • 100 days of guaranteed employment factually only 43
  • wage disbursement lower than the minimum specified under NREGA
  • discrimination between men and women; women do not get jobs or are paid less
  • misappropriation of funds by creation of ghost workers (on paper only); highest in Karnataka and Assam
  • no filling of muster rolls at places of work and record manipulation
  • unsatisfactory monitoring by Center
  • Block Development Officers issuing cheques in their own names
  • staff shortage

New Delhi FamilyNREGA is turning into a sink hole that’s contributing to the growing fiscal deficit of the country. Despite NREGA being active since 8 years, there is no significant development in village roads and infrastructure or improvement in local job opportunities. Furthermore, there are concerns that NREGA is creating agricultural labour deficit during peak harvesting and sowing seasons. Though, if the farmers were paid well and taken care of in bad times, maybe they wouldn’t head out to cities.

The total expenditure under NREGA in 2011-12 was Rs. 37,303.30 crore. Bihar Chief Minister Nitish Kumar, however, states that the implementation of NREGA is suffering due to “non-availability of funds” and CAG findings are “untrue and deceptive.” Another political blame game is on the verge – and it will end nowhere.

Rural Development Ministry is talking about making direct payments to NREGA beneficiaries through Aadhaar cards. But the bottom line is that NREGA does not add long-term value to scheme beneficiaries. It would be wiser to divert funds to better implemented schemes that support farmers and rural populace rather than stick with NREGA that’s clearly a failure.

 

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Real Estate Bill: Buyer Nirvana?

The Real Estate Bill 2011 is  the strongest attempt so far to regulate the massive real estate market. Since there seems to be rare consensus between political parties on the issue, there’s a good chance the Bill will be passed in Parliament. The Real Estate Bill will not only protect buyers from the unethical practices of unruly builders and developers but also promote transparency and accountability in the real estate sector.

Bangalore Properties - Real Estate India - Whi...

It is often the case that developers do not divulge the nature of a housing project, size and cost accurately. Agreements between buyer and developer typically favor the builder, giving him tremendous leeway to change terms without any compensation to the consumer. Take the case of Springfield Apartments in Bangalore where seven wings were constructed illegally and sold by the builder without the necessary approvals. Almost 1,300 residents faced eviction when the fact came to light.

Housing projects also get delayed or cancelled if builders launch projects without acquiring necessary sanctions. The Real Estate Bill aims to right this skewed balance of power and restore confidence of buyers in the real estate sector.

Key provisions of the Real Estate Bill 2011

The Real Estate (Regulation & Development) Bill 2011 supports regulated and planned real estate development via standardized practices and efficient systems for the sale of immovable properties. Key provisions of the draft Bill include:

  • Establishment of Real Estate Regulatory Authority (RERA) in each state to assure planned and orderly growth.
  • Mandatory registration of developers and builders for accreditation.
  • Mandatory public disclosure norms (allowed only after all approvals are in place) that include developer details, project, land status, statutory approvals, and contractual obligations.
  • Promoters’ obligation to adhere to approved plans and project specifications, with clause to refund buyer satisfactorily in case of default.
  • Allottee’s (Buyer) obligation to furnish payments at agreed interest rate without delay.
  • Directive for developers to allocate 70% of funds collected to that project to avoid misappropriation of consumer’s money and delays.
  • Establishment of Authority (one chairperson and at least two members with experience and knowledge of real estate) to advise government in planning and dispute resolution.
  • Establishment of a Real Estate Appellate Tribunal (REAT) by Central Government for quick resolution of disputes submitted by Authority.
  • Establishment of a Central Advisory Council to counsel government and make recommendations to protect consumers and foster growth of real estate sector.
  • Penal provisions to ensure compliance.
  • Jurisdiction of Civil Courts barred on matters before Authority or REAT.

What’s in it for buyers?

Bangalore Properties - Real Estate India - Sou...

The Real Estate Bill will help to contain the circulation of black money that is rampant in the real estate sector. Public disclosure norms and registration of developers will reduce fraud and possession delays as developers will have to complete all approval processes before launching a project or advertising it.

Developers’ unfair practice of reducing common areas, making arbitrary changes, selling off cordoned open spaces, and modifying terms would be restrained as these actions will be penalized. Fair agreement terms will also help buyers.

What’s in it for developers and promoters?

The Real Estate Bill will create an opportunity for honest developers to differentiate their projects and services from the masses. Since state authorities will be given 30 days to reject or accept an application along with necessary paper work, development of projects will not be delayed over administrative red tape. As allottees are also legally accountable under the Bill, developers will be protected from defaulting buyers and bankruptcy.

If the Real Estate Bill is passed in Parliament, buyers will be the happiest lot. Too many unscrupulous builders have come up, looting people as well as the environment with corruptly gotten sanctions, false promises and unplanned development. However, a Bill is as effective as its implementation. Will the Real Estate Bill lead to the maturation of a quality real estate industry in India? I sure hope so.

 

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The Sahara India Pariwar Saga

Here’s yet another turn in Sahara-SEBI war. Subrata Roy, CEO and group chairman of Sahara Group has approached the Supreme Court to postpone the hearing scheduled for April 22. That’s when Justice K.S. Radhakrishnan is expected to consider SEBI’s petition to detain Subrata Roy and directors Ashok Roy Choudhary, Ravi Shankar Dubey, and Vandana Bhargava to initiate contempt proceedings against them.

English: At home of Subrata Roy Sahara

Sahara Group was instructed by the Supreme Court in August 2012 to refund ₹24,000 crore to investors in 3 months, along with 15% interest. The charge on Sahara Group, its CEO, promoters and directors is that the firms Sahara India Real Estate Corp. Ltd. (SIRECL) and Sahara Housing Investment Corp. Ltd. (SHICL) raised funds through optionally fully convertible debentures (OFCD) without complying with prudent disclosure and investor protection norms such as notifying investors when their deposit matures or KYC norms. Moreover, majority of investors in Sahara’s scheme come from rural villages and small cities who were attracted by the interest rate but have no idea what OFCD means.

SEBI argues that under the guise of Residual Non-Banking Corporations (RBFC) distributing OFCDs, the firms were running regular deposit schemes and para-banking activities – a breach of SEBI regulations and the Companies Act. An OFCD scheme runs only 10 days while Sahara has been collecting money for years – from over 23 million people. That too in a highly irresponsible manner as their investor records show – incorrect names and addresses, no nominee record, etc. In effect, if an investor does not come to Sahara with debenture papers, the money will stay in Sahara’s pockets – an observation made by courts too.

SIRECL had collected ₹19,400.87 crore from investors by March 2008 and SHICL ₹6,380.50 crore. With the 15% interest, Sahara must pay back over ₹38,000 crore to investors. The company claims 86% of the funds have already been refunded except ₹5,120 crore which they have paid to SEBI on the court’s order.

Since Sahara has failed to make further expected payments to SEBI and their investor records show bizarre gaps that could mean they are bogus, SEBI has passed an attachment order on bank accounts and assets associated with SIRECL and SHICL. Sahara has filed an appeal with Securities Appellate Tribunal (SAT) to appeal on this issue on April 20.

Sahara claims that SEBI has no jurisdiction in the OFCD matter as they are a privately held company and hence answerable only to the Ministry of Corporate Affairs. This argument does not wash with the Supreme Court of India or SEBI.

What of the investors that Sahara accepted money from? Roy claims that none of his 110 million investors have anything to complain about. But reports have come in of strong-arm tactics towards investors who are coming in with their papers and conversion of investments to Roy’s newest venture Q-shop without investor’s consent.

Meanwhile, Sahara Group has acquired acres of land in Delhi, Gurgaon, Mumbai and purchased controlling stakes in hotels abroad with possibly the funds accumulated from SIRECL and SHICL. That’s not a crime but it rightly raises questions for which Sahara doesn’t have convincing answers. Is it the road to doom for Sahara or will Subrata Roy’s entrepreneurial soul find a way out yet again?

 

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