field is wasteful
Financial Express, May 21, 2012
Pradeep S Mehta
Private railway container operators are likely to face a double
whammy. First the haulage charges were raised and then the
terminal charges have gone up by a whopping 35%. The railways
container company Container Corporation of India Ltd (CONCOR) will
not face this injustice because it operates out of its own
terminals. This is a classic case of lack of competitive
neutrality, which is now being addressed under the draft National
Competition Policy (NCP).
This is not the
only instance of railways' step-motherly treatment of private container
operators. They have been subject to discrimination ever since container
operations were deregulated. A CUTS study, done for the corporate affairs
ministry, shows that private operators have to pay to railways in advance, while
CONCOR need not do so. Furthermore, private operators cannot acquire land from
railways at reasonable costs for building container depots. They are then left
with the only option of using CONCOR’s depots. For that, they have to pay high
charges which is tantamount to an entry barrier and denial of access on fair,
reasonable and non-discriminatory grounds. This is a violation of the essential
facility doctrine, another issue dealt with under the NCP. Some commodities can
only be carried by CONCOR and not by the private operators.
The necessity of competitive neutrality and access is something that we are yet
to appreciate in our approach to a mixed economy. As a national policy, we have
decided to deregulate infrastructure sectors rather than privatise to promote
competition in the market. But the government has not yet been able to stop
mollycoddling the public sector; old habits die hard, and the purpose is lost.
Another great irritant is the mandate to fly only on Air India for civil
servants and people like me, when travelling on government business, even though
the private carrier may haul us for lower fares and offer more convenient flight
timings. For example, when I have to attend a government meeting in Delhi flying
from Jaipur, if I take the Air India flight, then I will have to spend nearly
three days out of Jaipur because the flights operate around lunch time. This
would involve two-nights stay in Delhi, which means higher cost to the ministry
whose work takes me to Delhi. A better option for me is to fly by a private
carrier in the morning and return home in the evening. There are opportunity
costs too, because I will be out of Jaipur for nearly three days. Granted that
the host ministry seeks a case-to-case exemption for my travel on a private
airline from the civil aviation ministry, but the delay in settling my bills is
phenomenal. I can afford the delayed payment, but smaller NGO representatives
cannot wait for long. This is not to count the unnecessary administrative costs
of babus seeking clearances from other babus in the civil aviation ministry and
its opportunity costs as well. What a waste of my money as a tax payer!
As always, the issue of proportionality does not exist in the lexicon of our
inertia-ridden babus. But I must compliment the finance ministry here. Whenever
flying for their meetings by a private airline, one is paid on the spot without
questions asked. The only little thing that one has to do is to certify that
there was no convenient Air India flight available. Speaking of Air India, which
is running perpetual losses, the Competition Commission of India is also
reviewing the issue of bailing them out by the government as something that will
adversely affect the competition scenario in the country.
There is some good news as well. Our public sector telephony companies BSNL and
MTNL have been making losses for long as well, but fortuitously the government
is not insisting on its departments using only their telephony services. (I pray
that some babu does not get the bright idea of seeking special favours for BSNL
and MTNL also).
State aid and subsidies promote inefficiency and go against the interests of the
industry that competition processes seek to protect and promote. This is the
reason why EU recognises the need to regulate state aid within its competition
law regime, and also to promote a seamless internal market. Studies have also
been carried out in countries like South Korea and Mexico to analyse the effect
of aid on various industries which clearly show that productivity growth in
industrial sectors targeted by state aid has been poor compared to productivity
growth in untargeted sectors. Further, the act of granting aid to selected PSUs
with a public policy objective is against the principle of competitive
neutrality and disincentivises private sector players.
The best example of this in India comes from the fuel oil retailing sector. Some
time ago fuel retailing was opened up to private players. Reliance, Shell and
Essar stepped into the sector and started establishing outlets through out
India. But they could not compete with the three public sector giants Indian
Oil, Bharat Petroleum and Hindustan Petroleum, because the public sector
receives subsidies from the government to sell goods at suppressed prices. This
happens in spite of the fact that the administered price mechanism was abolished
some time ago. Ad nauseam calls to peg fuel prices to international oil prices
remain as calls in the wilderness, due to political economy constraints.
Consequently, Reliance has shut down its outlets, while Shell and Essar continue
to operate some of their outlets only in the hope that better sense might
prevail on the government in the future. The simple thing would be to offer the
same subsidies to the private sector also and level the playing field, but the
government is unwilling to do this. They claim that when licences were awarded,
this was a condition. It is also a violation of the fundamental right to
equality under our Constitution. Imagine the huge costs of such outlets, which
are either haemorrhaging or lying shut.
It is, therefore, necessary to carefully monitor wasteful state aids and
subsidies that can be a big menace to a country’s economy and the governance
regime. Since the poor do need state aid, such programmes should be done through
more efficient means and through the demand side rather than the supply side.
India is fraught with examples of distortion of competitive neutrality and
wasteful subsidies and bailout packages. It is time we looked into the
regulation of such grants as well, and wherever possible to provide cash support
to the poor. The way forward is through the proposed National Competition
Policy, which has addressed all these issues in depth. It is hoped that it will
be adopted by the government sometime in not too distant a future.
The author is
secretary general, CUTS International.
This article can also be viewed at: