THE TELECOM BATTLE INTENSIFIES, AIRTEL CHANGES GAME PLAN.

Neither the strongest of the species nor the most intelligent but the one which is more adaptable to change, survives said Charles Darwin. Change is important, change is crucial when your environment is tough, competitive, and dynamic.

Similar is the situation, in the Indian Telecom Market, midst of a hyper competition going on, while the players are facing a difficult time, managing their profits and margins, government has raised close to approx 68000 cr from the recent 3G auction which has furthered raised the attractiveness of the market, which is already attracting new players due to its potential. When we talk about the potential of the Indian telecom market, I need to mention a few points here, though experts feel that the on-going hyper competition may spoil the game (I too have written an article earlier regarding this), this is a short term crisis, but if we talk about the real long term potential of the market, here are some compelling facts and figures.

There are totally, more than 500 million phone users in India, and growing at a rapid speed, this number is expected to hit 1 billion by 2014. The Indian Value added services Industry alone is expected to touch a turnover of Rs 21000 crore by the year 2013. Apart from urban market, the rural India too is a potential market to explore for these telecom companies, the attractiveness of the market has been continuously attracting new players into the market, in order to grab their pie of the market share, the new players have triggered a price war, where the call rates have dropped to the extent that it has hit the margins. Many companies are now charging for calls by the second, rather than by the minute, with plans for as little as 0.50 rupee a minute and when the number portability comes into play, it would further intensify the competition.

As the domestic market becoming hyper competitive, and the market becoming more of a commodity market, what should be the company like Airtel’s strategy? Pioneer in the wireless market, with vast experience, resource and major market share, Airtel has always been a star player in the market, when it comes to quality of network, customer service, offers, marketing and promotions.

Despite having a strong hold in the domestic market, having a competitive advantage of excellent network and customer service, the crowd in the domestic market has driven Bharti Airtel overseas. Growth is life, Sunil Mittal, the super star of the Indian Telecom Industry knows this very well, an expansion plan will definitely workout at a time when all major Players are competing to keep their growth graph going up, Airtel plays the game safely, sensing that the telecom market is becoming more of a commodity market, Bharti Airtel had changed it’s game plan long time ago, though competing enough to sustain its competitive advantage in the domestic market and increase it’s market share, Bharti Airtel focusing more on overseas expansions through M & A deals, this is visible by the series of overseas deals that Bharti Airtel has done abroad till now. Bharti Airtel wants to expand it’s presence globally with in a short period of time, that is the reason why Airtel has been focusing on inorganic growth, though majority of the M&A deals have been unsuccessful in the recent past, even experts write and preach about M&A deals that they fail to create share holder value or destroy share holder value, but if you can do it right, in Jack Welch’s words “M&A deals give you a faster way to profitable growth, They quickly add geographical and technological scope, and bring on board new products and customers. All in all, successful mergers create a dynamic where 1 + 1 = 3 (Synergy), catapulting a company’s competitiveness literally overnight’s.

Now, coming back to the story, let’s have a look at the series of overseas deals done by Bharti Airtel in the Past few months. The company launched its mobile services in Srilanka last year and has more than 1 million customers there. It acquired the Abu Dhabi Group’s Warid; currently holds 70% of the stake, the deal enabled Bharti Airtel to enter the lucrative neighborhood market. Waird has more than 3 million subscribers. The deal gives the company a strong hold in one of the fastest growing telecom markets in the world, having more than 52 million mobile subscribers and the number is expected to touch 100 million by the year 2015. Airtel’s move came after its plan to buy a stake in South Africa’s MTN collapsed. Waird is the sixth largest telecom operator in Bangladesh.

Recently, Bharti Airtel acquired Zain’s African unit in a $10.7 billion deal, with the closing of this deal Airtel becomes the 5th largest telecom company in the world. The deal has given the company a strong presence in the potential African Telecom Market.

The series of deals have brought it total to 18 markets, a global foot print surpassed only by the large European operator groups and its new African rival, MTN. Bharti is also in talks with Tanzania’s government over its stake in Zain Tanzania. If materialized, the talk will make Bharti the second-largest African operator group behind MTN.

With the competition intensifying in the domestic market, at a time when players struggle to defend their market share, Bharti Airtel has been successfully dominating the market for years now, holding its numero uno position, and at the same time seeing the threat of price war affecting the current growth opportunities, Airtel changes it’s game plan, expands its global presence and will continue to do so to offset the pressure in the domestic market and also to fulfill it’s long-term goals of becoming an International Company.

But the biggest Challenge ahead is, how well it manages the M&A deals profitably in the coming months, and how it adapts itself and performs in the new market in spite of all challenges, the company which has handled all the challenges efficiently to reach the position it enjoys today… how well it would handle this new challenge is what is to look for…. Hey! Closely watching Bharti Airtel’s next move…..

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WELL DONE STEVE! YOU HAVE MILES TO GO……

Well, ‘you don’t have to be a fantastic hero to compete, you can be an ordinary chap sufficiently motivated to reach challenging goals’ said Edmund Hillary. The world is competitive and heading towards globalization where the fittest can only survive. You are left with two options in the competitive world, either be fit, if you are not, then have the attitude to fight against all obstacles, prepare yourself to face failures, stand up for what you believe in, don’t get despaired or discouraged, struggle, survive and excel, in this process you will eventually become fit enough to live and achieve in this highly competitive world of machines.

I would like to share with you about the life and achievements of one such personality, who fought against all the problems and resistance to reach the level that he has attained today. A born fighter, known for his quality of perseverance, much has been made of his aggressive and demanding personality. The man is Steve Jobs, the co-founder of the iconic company APPLE, the brand people love almost all around the world.

The Chairman and CEO of APPLE really had struggled in his life to achieve the position that he enjoys today. Failures and hardships helped him cultivate the excellent quality called perseverance. A quitter never wins and a winner never quits, his quality of perseverance helped him emerge as a winner in spite of failures and hardships. In fact I have been his admirer ever since I started learning Management, not for the level that he has attained, but for his ability to fight against failures, for his aggressive attitude, for his passionate approach towards life.

Let’s peep into Steve’s past, how he made a great come back after facing so much of hardships in life. Steve was born to an unwed graduate, who put him immediately for adoption; he was adopted by an American couple who had a low level of education. Jobs graduated from high school and enrolled in Reed College in Portland, Oregon.Although he dropped out after only one semester, he continued attending classes that interested him. He would sleep on the floor of his friends’ rooms and returned coke bottles to earn 5cents per bottle to buy food. Every Sunday night, he would walk seven miles across town to get a free meal at Hare Krishna Temple.The early part of his life and his struggle against problems made him more aggressive and made him try harder. He went on to co-found Apple in 1976, marketed it’s products aggressively. He was fired from his own company, by the Apple’s board of directors in 1985, failures made him more stronger, motivated him again to found Pixar and NeXT, in 1996 he became a member of the Board of directors of Walt Disney, in the same year Apple’s Subsequent buyout of NeXT brought Jobs back to the company he co-founded, and again regained his position, became the CEO of Apple in 1997. The star of the corporate world, has been leading his company year after year success around the globe in multiple markets and against brutal competition. What makes him special is the ‘never give up’ kind of attitude, a pancreatic cancer patient, even had a liver transplant in the month of January last year, nothing could stop this man, Jobs officially resumed his role as CEO of Apple on June 29, 2009.

Failures and hardships could never pull this man back, all along his life, he has been determined to achieve great things and passionate about life and business.

Now comes the important part of this story, under his leadership Apple has recently become the second largest company in the United States in terms of m-cap, ahead of Microsoft Incorporation, another mile stone crossed, yet another feather on Steve’s Cap. Well done Steve! You still have miles to go……

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THE BUCK STOPS AT WHOSE DESK?

Recently, there was a war of words between two prominent politicians of the country over the word ‘buck’. Before the argument ‘The buck stops at whose desk’ could end a tragic and horrific incident shook the nation, 76 CRPF Jawans were massacred by the Naxalites at Dantewada. The brutal attack on the CRPF shows the ugly face of Naxalism. Naxalism can get uglier, if the government doesn’t take some concrete steps to put an end to this serious internal threat. Naxals are not just a group of bandits involved in violence, I have written about this in one of my earlier articles ‘carry out operation green hunt’. Naxals fight with a purpose; they have a common agenda and ideology. Recently a national newspaper published a shocking report that Naxalism is a 1500 crore empire. They have a strong set up, with different layers of committees and cadres, a strong core committee to formulate plans of action, strategies; it is not just violence, but guerrilla warfare against the state, against democracy. On the other hand, government sends out troops to crush them, in fact the Naxals are very much threatened by the government offensive; it seems the recent motive behind the brutal attack was to slowdown the government’s offensive against them. The Naxals literally enjoy many advantages over the state forces at those areas, they have mass support, many believe in their ideology, the tribes support them either by choice or by force and believe that they can do some good for them. Most of the people of those areas have lost faith in the government which has been neglecting them for years and failed to meet their basic needs. The left ideologists have been propagating among them that the state wants to get the Naxals wiped off so that it can grab those mineral rich lands. Naxals are familiar with those areas, they are well trained, organized and they know how to operate in jungles, their safe hide out. Their areas of operation are very large, they can hardly be cornered like the Srilankan army did with the LTTE, and it was an island that went as a disadvantage for the LTTE. Naxals, when cornered they move out to other states, or they move into Bangladesh or Nepal or any other neighboring nations through porous borders.

So what should be the government’s strategy to fight these rebels? Simply deploying forces won’t serve any purpose. The government needs to adopt a two-way approach to deal with Naxalism, at one side; it needs to carry out a coordinated offensive against these rebels, at the other side it needs to show its compassionate face to the innocent tribes and poor of those Naxal infected areas. This is not the time to blame each other, or to fix some body for the recent attack or to argue ‘the buck stops at whose desk’. Well, I am not a defense expert, but the operation against the rebels can be successful only when there is a clear coordination between the state and central governments, in fact that is the major concern in the Naxal operation, absence of coordination among governments and difference of opinions. When the forces corner the rebels in one state they move into some other state, when the government of that state does not respond in a similar manner to fight the rebels and corner them the total effort goes in vain, this is what happens, lack of coordination. Secondly, forces need to be well-equipped especially when they are carrying out such difficult operations in the jungle, which is a permanent hideout for the Naxals, they know about the jungle very well. Thirdly, an active intelligence network which can provide precise and real time information regarding Naxal movements, operations and presence. Even the recent attack, experts say, happened due to intelligence failure.

On the other hand, how should the government deal with the innocent people of those areas, firstly, government should ensure that the state forces don’t harass them, most of time this happens, government forces pick innocent tribes or villagers for interrogation, suspecting them as rebel supporters or informers. Constant harassment from the government forces has resulted in hatred for the government among those people, a few months back there was a report in the Newspaper that the state police arrested a few tribal people suspecting them as rebel informers. In that group of arrested people, there was an old lady, who couldn’t see and speak properly, the old lady along with others was booked under waging war against the state act, can you believe this?. How will the people trust the government?, how will they believe that the government which has been neglecting them for years will take concrete steps towards development and that it will meet their basic necessity.

The primary objective of the government should be to win back the trust and confidence of the people of those Naxal infected areas not by making false promises, but by systematic development visible enough to convince the people that finally the government has taken their development issues seriously, development is the key. There was a news report recently, that NREGA scheme has been implemented effectively in the Naxal affected areas, this shows how people are desperate to see development. Along with the development, a clear communication between the concerned state government and the people need to be established through IAS officials appointed at various districts, they can play a vital role in providing the ground level information about these people, their needs and problems thus government can respond to them quickly, this will restore the faith of the people in the government and democracy.

The sacrifice of our precious soldiers who lose their lives in this bloody battle should not go in vain; the purpose of the offensive should not be to grab those mineral rich lands as the left ideologists say, but for the purpose of bringing real development in those areas and real changes into the lives of those poor tribes. At one side when our forces fight the rebels, at the other side, the top priority of the government should be to ensure the prosperity of the economic developments flows to those areas too and help these underprivileged people lead a descent life, so that their next generation do not take guns to fight against their own government and their own country, but become patriots and serve their country in one way or the other.

Naxalism is a lesson to learn for the government and the people, there are thousands of people in various part of this country, starving from poverty, suffering from diseases, lack of access to basic necessities, lack of education, unemployment, government should take more interest in the development of these people, rather than giving more and more tax exemptions to the rich, before these people too, become desperate and frustrated and take up arms against the country.

Long Live India, Long Live Democracy!

‘THINK BIG AND ACT BIGGER’- PRANABDA’S BUDGET EFFECT

Weeks after the Union Budget, after a month long, criticisms, praises and debates by experts, the storm has finally calmed down. Majority of the corporate people favored the budget, calling it a growth oriented and a budget for long term growth. This indicates that the budget has offered a lot for the corporate sector and on the other side opposition parties and a few intellectuals criticized the UPA for fuel hike, failure to contain inflation so on and so forth.

Let’s first see how a perfect budget should be, a budget should not be a short sighted one, like giving a lot of freebies to the People just to save vote banks and completely ignoring the long term goals, usually governments do during the election year. A budget should not be completely focused on long term growth only, ignoring the current problems and immediate requirements of the people. A good budget should be a balanced one focusing on the long term growth and at the same time the focus should also be in solving present crisis. The budget should provide favorable conditions for private sector investments, allocate funds for investment in long term infrastructural and human resource development ( education, health, nutrition, clothing, shelter, jobs) and short term needs like inflation check, smooth supply and availability of basic food items, efficient functioning of public distribution system etc. so overall budgeting is a balancing act.

Now keeping this theory in mind, let’s analyze the union budget. The objective of the budget is to boost public consumption, demand and private sector investments and a private sector led growth which the government believes, will create jobs and increase growth rate.

The macro economic strategy of the government is clear enough to prove the above said objective. The broadening of tax slabs will result in more disposable income in the hands of consumers and thus will increase consumption and demand. To exploit the opportunity, a favorable demand-led growth, the private sector needs more capital at a reasonable interest rate, government has a plan for that too, it aims to reduce the fiscal deficit from 6.9% to 5.5%, how? Government plans to raise Rs.75000 crore that it plans to collect from the sale of equity in public sector firms and the auction of third-generation telecom sector, this would keep it net market borrowing to Rs.3.45 trillion. So lower marketing borrowing by the government due to reduced fiscal deficit should keep the interest rate low, which should ensure availability of cheap capital for the private companies and a huge investment in infrastructure 46% including 25% to rural areas.
So a perfect platform for an investment led growth.

But what the finance minister, failed to see is the inflation, the inflation if not contained, will spoil the whole game, how? Firstly, a high inflation may discourage consumer spending on goods other than basic goods. Secondly, the RBI in an effort to contain inflation has already raised its repo rate to 5% from 4.75% and reverse repo rate from 3.25% to 3.50%, as a result banks will any time increase their lending rates. So, cost of capital for private sector will rise. Only hope is the fiscal correction, but industry experts feel that the governments target to raise 35000 crore through 3G auction is too high as the telecom companies who are already in too much of pressures because of hyper competition in the market will not be able to afford, and due to absence of any foreign players for the bid, the bid will be very conservative. The target of 35000 crore may not be possible. So, in such a situation, the success of the macro economic strategy of the government seems uncertain.

Now, coming to the corporate sector, let us see how the budget favors the corporate sector. Firstly, the broadening of the tax slab will rise consumer spending and boost demand, of course inflation will affect a section of the tax payers and discourage spending, but the top creamy layer of the tax payers will lead the consumption and demand. So this will favor the corporate sector to a certain extent. Secondly, if the government succeeds in reducing the fiscal deficit to the proposed level, will reduce government’s market borrowing and this can to a certain extent offset the rise in interest rates to contain inflation, otherwise, higher market borrowings from the government would further rise the interest rates and would definitely discourage private sector borrowings.

The stimulus package has only partially been rolled back; this step of the government really goes in favor of the corporate sector. The surcharge has been reduced to 7.5%.
The RBI’s consideration to issue new licenses to private sector players and NBFCs is a real boost to the companies in the finance sector.

Now, the reasons to worry for the corporate sector, the rise in excise and customs duties will make the consumer durables dearer. Some of the segments that are going to be affected by the duty hike are aviation sector, auto mobiles, consumer durables, Real estate etc (some products like mobile phones and accessories, medical equipments, micro wave ovens, CDs and DVDs will become cheaper). Rise in MAT (Minimum Alternative Tax) from 15 % to 18% will affect mainly affect IT and oil companies.

Now, what does this budget offer for the common man, now and for the future? In a common man’s perspective this budget has neglected some of his immediate needs, though funds have been allocated in some crucial sectors for future developments, yet considering the pathetic conditions of Indians below poverty line, the fund allocated for human resource development (Nutrition, Education, Health care, shelter and clothing) is considerably very low compared to the level of investment needed. But of course, the funds needed for human resource development cannot be provided in a single budget keeping fiscal deficit in mind, investment in HRD is a consistent and long process. So what are the immediate problems the government failed to solve? The obvious answer is inflation and fuel price hike. With an objective of drafting a perfect budget for a demand led growth. Government failed to check inflationary pressures which surged to 9.9% recently leaving the middle class and the poor to suffer, and the extremely poor, below poverty line people to almost starve and die. The inflation problem can not be solved only by raising the interest rates. Government should have taken concrete steps to stop speculation and most importantly should have immediately increased supply of food items by increasing production and imports, and it is not enough, building a strong public distribution system is essential, because of our inefficient public distribution system, food supply do not reach efficiently to the end consumers, a large quantity of food items are wasted in transportation and ware house storing. For a long-time now many experts in the field have shared their views about the same for an effective distribution system. Another serious concern is the existence of middle men in vegetable distribution channels, these middle men raise the Prices of vegetables 4 to 5 times before it reaches the retailers, there should be a mechanism in place to regulate the prices of the vegetables, to discourage gambling by middle men in the channels.

The hike in fuel prices further added to the inflationary worries, the fuel hike has resulted in high transportation cost, and further pushed inflation rate higher. But you may think, the broadening tax slabs will result in rise in disposable income in the hands of at least the middle class. The sad thing is that the broadening of tax slabs does not benefit the lower middle class; it only favors the sophisticated upper middle class and the well-to-do.

Assuming that you must have gone through the revised tax slabs, the taxable income above Rs.160000 and up to Rs.500000 would be taxed 10%, earlier taxable income for the range of 3 lac to 5 lac was 20%, now the people in the income bracket of 3-5lac bracket will pay less tax, who are the these people? the upper middle class whose income level is some where between Rs 25000 to Rs 40000 per month and having taxable income from Rs 500000 to Rs 800000 would be taxed 20%, a tax amount considerably less than what they were paying earlier, they are people whose income level is some where above Rs 40000 to above Rs 60000, the creamy layer in the middle class and for income level above Rs 800000 the tax rate is 30%. These people account for only 5% of the population who pay such taxes. These are beneficiaries of the tax measures, which will cost the exchequer, an estimated Rs 26000 crore, in other words, loss in tax revenue.

So, is this budget completely negative in a common man’s perspective? No, government has allocated funds for some crucial sectors like infrastructure. A huge investment in infrastructure (46%, including 25% for rural infrastructure) will give a boost to long-term growth. Funds have been allocated for Bharat Nirman ( Rs 48000 crore), for urban development ( Rs 5400 crore) and other social sector projects like education, health etc. Funds allocated for social sector projects are not sufficient enough. But, the investments made in these sectors will bring long-term benefits.

So, overall the budget is more of a long-term budget focusing on the growth rate which failed to solve short-term problems. The objective is to achieve an investment-led growth and the assumption is that economic growth will deliver more jobs. Funds allocation will not only be sufficient, the key to success is not only to invest in crucial social sectors and infrastructure but also to monitor that the funds are effectively used for the purpose and to ensure efficient functioning of social sector projects

WHY THE RED DRAGON IS ON THE OFFENSIVE MODE?

China has been in the news for a long time now for bad reasons like censorship issue with the Google, issuing separate visas for Indians flying from J&K, Chinese army entering Indian Territory; the latest is the news that the Chinese have hacked the mail accounts of Google user’s mainly human rights activists and they are allegedly involved in spying activities. Why china is getting aggressive and trying to establish its influence around the globe? It has recently warned the US president Mr.Obama, not to meet Dalai Lama.

China has a totally different political and economic setup, and it has its own advantages. China is communist at heart but capitalist at brain, unlike other communist countries which adopted complete communist policies and too much of bureaucracy leading these economies to become stagnant, this is what happened with the Soviet Union, post Lenin era and some countries which were socialistic in nature started to adopt capitalism and have become almost free markets, they are totally in a confused state, mixed economy hoping to achieve the prosperity that capitalism promises, still keeping a majority of its masses in poverty, unemployment and illiteracy.

But china on the other hand, is a complete communist regime, party is above all, but yet has adopted capitalist model of growth. These Chinese are crazy about foreign direct investments; they have provided entirely favorable environment for foreign investors, they are not only flourishing in exports but also serve as a great market for western companies. Even the Chinese have started learning English, and are attracting even BPOs to their country. The kind of policy they have adopted has helped them build adequate infrastructure, attract huge foreign direct investments and more importantly has created millions of jobs. The policy makers of this country have played a fantastic role in pulling out millions of people out of poverty over the years and steered the total economy to achieve tremendous growth rates and will continue to be one of the fastest growing economies of the world, but what seems interesting is that, though these communists have adopted a capitalist model of growth and allowed a plenty of corporate companies to flourish in their territory, they still control the economy at a large scale, it is not a free market, remember party is above all. Usually, in a free market or capitalist society, the corporate companies rule the country, they control government decisions, and this is an untold truth and hidden fact. But these communists are very particular about that, they never allow private hands to play at their will, there is a complete government control in the whole functioning of the economy.

This is where the capitalist societies of the west have the problem, they want free market every where all around the globe so that, their companies grow, expand and flourish and strengthen their already strong economies and the Chinese communists know this well, that’s why they play this capitalist game very cautiously, but the point is, china is a very attractive market like India, and the whole west knows that china has a great future, and impatiently waiting that one day this china will become a democracy like India, so that the exploitation of the market becomes easier. They basically hate communist regimes.

The Soviet Union, of course had its own draw backs, the economy was totally mismanaged post Lenin era, but the then western Industrial powers, especially, the US played a great role in facilitating the collapse of the Soviet Union and these Chinese Communists know history very well, they know how their comrades were felled by these western powers and they wait for another historic opportunity to crash their present regime too. So, it’s a situation of act or perish, grow or perish. They have decided to expand their influence now around the globe and got into the offensive mode, unlike the Soviet Union which was very much defensive, and tried save its power till then it was very late. These Chinese have decided to take on all their threats, that’s why it views India more of a competitor than as an ally ( I have already posted an article on this), that’s why it has started its spying activities around the globe to keep a check on all the western powers. China has emerged as an important financial center of the world and in the years to come will become a super power and will pose a real challenge for the whole western world and now the Chinese communists are preparing themselves for the challenging future and to make themselves capable enough to foil any possible attempts the western world can make to destroy their regime. The on-going tensions between china and US over the US president’s meet with Dalai Lama, the US government coming forward in support of Google, the western countries’ concern over china’s rapid economic growth and a possibility of becoming a world power, Multinational companies’ desperation to exploit the Chinese market, all these factors may contribute to a Cold war situation in the future, remember such a cold war existed between U.S.S.R and the U.S for years until the collapse of the Soviet Union in 1991. So, The Chinese probably see such a cold war in the future and thus the Red dragon has decided to fight all its threats including India and right now is on the offensive mode. Now, the time has come for India to be cautious about China, and needs to prepare itself in all possible way economically and militarily to defend itself from any Chinese threats in the future.

TRAI WAKE UP! THE REAL TELECOM GAME BEGINS NOW……

“I don’t meet competition, I just crush it” said Charles Revson, but as the Indian Telecom battle going on, it’s likely that a few players will get crushed. Yes, it’s about the hyper competition that is going on in the Indian telecom market.

India is the fastest growing telecom market in the world, having approximately 52 crore mobile users, account to more than 50% of the population and the expert forecasts show that by 2014, the number of mobile users will rise to 100 crores. India being a very attractive market in terms of its population and ever growing educated middle class, and potential unexplored rural market, apart from some strong existing players, more and more new entrants have been entering the market. As the competition is getting intensified, Michael Porter’s all the forces have become active, in the telecom industry, right from industry competition, new entrants, bargaining power of suppliers, bargaining power of customers, Threat of substitution. Well, as the number of phone users growing day by day, new entrants see the opportunity and have been entering the market and also giving tough competition to the early birds. As the competition intensifies the companies have started to bombard the market with offers like cheap connections, lower call rates and various other mixed offers to attract customers, and the biggest beneficiary of this intensified competition is the customer, the Indian mass have been benefiting from the offers offered by these companies. Competition is good for any industry; monopoly is bad, because it will affect common people.

But what is going on now is something very interesting, blistering growth has attracted new players like Japan's NTT DoCoMo Inc which formed a joint venture with Tata Teleservices Ltd. in June and sparked a race to the bottom over prices as companies rush to grab market share. The price war triggered by these new entrants have resulted in hyper competition, the price cut is huge and unimaginable, the call charges were dropped as low as 1p/sec, later MTNL’s MTN offered ½ p/sec, and companies like Virgin,Reliance offered 20p/min, now the last one to join the price war is Tata Do co mo offering 1p/6 sec (call charges, though similar but may vary from place to place).

Indian consumers at least have a reason to smile, despite the increased food inflation, that the telephone bills have come down drastically. But see what the companies are going through right now. The four month old price war has hit margins at a time when Indian telecom companies have little scope for cost-cutting, Macquarie Securities analysts said in a report. They maintain that the "price cut contagion" is likely to spread from retail rates to corporate, wireless data, international roaming and SMS rates as well. Midst of the price war, government has decided to rise the spectrum charge to 50% for the existing players recently.

The kind of price war that’s going on may lead to heavy losses and can badly affect the whole telecom industry, at least now, TRAI, our Telecom Regulatory Authority of India and Department of Telecom can intervene, not to control the market, but to take some measures to curb new entrants from triggering such kind of price war in the future. A price war that analysts say could turn India's telecom boom into a financial bust.

You may say, millions of people are benefiting from the low call charges, and price war is good, and after all who cares about the telecom companies. But the point is, we are part of a large system, an economy, a complex structure of sub-systems, where one sub-system gets affected the whole system is affected. You must be aware of such a price war that went on in the Aviation sector, which resulted in heavy losses for Airlines and companies were asking for bail out packages from the government. The telecom game that is going on now may result in a disaster; if the companies incur losses, this will badly affect the telecom sector and economy as a whole. Ultimately, government has to come up with bail out packages to save the sector, because the concern is not only about these companies which are pillars of the telecom sector but also about the thousands of employees working in these companies and the number of units like the intermediaries, suppliers, distributors etc. associated with the industry.

DISINVESTMENT! YOU MEAN, YOU GONNA’ SLAUGHTER THE GOLDEN GOOSE?

Will you sell your business when you need money? Or you will run your business efficiently and generate profits? I would go for the second option. But our government thinks otherwise, sell taxpayers assets to raise funds for social sector projects.

The Private Sector, has been given so much of freedom today in every aspect, the scenario was totally different before 1991, as a result of which the private sector companies could achieve tremendous amount of growth in these years. It’s probably good for India, in spite of having its own disadvantages like bringing in economic inequality, on the other side an open economy model has helped in generating good amount of Jobs in the urban areas, and India has become a hot destination for overseas companies for investments. Some infrastructural developments are taking place due to Foreign Direct Investments flowing into the country. We are being able to get access to modern technologies through FDIs, no doubt, but, all would be well and good if the government restricts its liberalization policies to the private sector only and not extend them and implement in public sector.

My argument is, do we need to hand over public sector companies to private hands or do we really need to divest?

Have you heard the story of a villager and his golden goose*? Of course you must have. A PSU is like a golden goose if run efficiently and profitably, it can provide sustained revenue to the government, in other words public, which can be used for infrastructural and other social sector projects. Instead, government over the years have been privatizing the PSUs slowly or divesting the stake to foreign or domestic corporate investors.

For the year 2009-10, Rs 30000 crores could be made available to the government through divesting the stake in PSUs and the same would be used to meet the fiscal deficit. One of the arguments kept by some section is that disinvestment would help PSUs realize their true potential and a change in management in this way would boost their m-cap. Of course yes, as soon as the government announced the disinvestment plan, the stocks of public sector companies shot up 20%, other wise who will buy stocks of public sector companies?

The point is, we Indians resist change, a revolutionary change to totally transform the way things are done, we want the system to go as it is, because a massive change would cause pain, an enormous amount of pain which we do not want to undergo, but there is no gain with out pain. But we just want things to go as they do usually. That’s the reason why we do not see rapid growth in our country, our court cases take years to deliver justice, projects initiated by governments move slowly and when they get over a total generation passes away, we couldn’t find a solution for Kashmir till now, complacency and tolerance have become the way of life for us. The only dramatic change that occurred in India was the 1991, so called economic reforms, that too was forced by external forces (European Union, World bank, IMF ... those elite Western institutions). So is the attitude of our politicians, our policy makers have come to the conclusion that these PSUs are of no use for the government any more, we need funds, let’s sell our assets once and for all. They cannot think otherwise, that why shouldn’t we run these PSUs efficiently, why not we bring radical changes through out the structure of the PSUs. When Corporate Companies can do that, why not a powerful democratic government, fiscal deficit is a problem for our country today, if these PSUs are run properly, it can yield sustained and permanent revenue for the government for years, instead of selling in a one final deal.

Yes, As a few section claim, including our policy makers, many PSUs are in a very pathetic condition today, heavy losses, rigid management at the top, lack of innovation and creativity, an inefficient work force, lack of competitive spirit, too much of government control… all these factors contribute to their inefficiency. But there are PSUs which are performing really well, especially in the banking sector and I have written about this in one of my earlier articles. Recently, there was a news report about Three Public sector companies BCPL (Bengal Chemicals and Pharmaceuticals), HAL (Hindustan Antibiotics Limited) and IDPL (Indian Drugs Pharmaceuticals, which were expecting operating profits in 2009-10. These firms were sent to the BIFR (Board of Industrial and Financial Reconstruction) for revival plans as these firms were declared sick units. Let’s see the steps that were taken to bring life to these companies. The firms have cut internal costs and improved employee productivity, upgraded technology, increased salaries and introduced performance-linked incentives to boost sales. Yes, this is the way to go. Just imagine, if all the PSUs in the country start to deliver in terms of performance how these firms can serve as a continuous and permanent source of revenue for the government.

The Point is, A complete change over is needed from top to bottom, a Business process Reengineering of these PSUs, first of all, autonomy, but with a pre-condition of performance evaluation time to time, that these autonomous units need to show in terms of performance at any cost, just like the way private companies are run, PSUs are also businesses whose objective is profit, then why not run these units in a commercial sense, (except a few public sector companies which were setup by the government for the purpose of serving citizens, but these companies too can be run profitably by providing excellent customer service). Secondly, top heads leading these firms, leaders need to show an absolute sense of passion towards their companies, this is where these PSUs are lagging behind, the heads leading these units are not leaders but mere appointed officials, and most of them do not have any vision for their company, nor do they have the urge to perform. The top management needs to be purpose driven, especially the one at the top of the hierarchy. Hire a few Jack Welch’s, Steve Jobs, and Ben Benarkes to lead these firms; do we have shortage of managerial talents in this country? For what purpose does the government provide subsidized education to the students of IITs and IIMs? Pick a few bright talents from these institutes; provide them adequate remuneration to lead these enterprises. Thirdly, Workforce, Most of government servants today misuse the privilege given to them by the government i.e., permanent employment, there is no incentive based package. Whether a government employee performs or not, hardly anybody bothers, even he performs or doesn’t he will get the same salary, there is no incentives based on performance, he enjoys full protection from the unions. There is no question of firing for under performance unless some serious allegations are proved against him/her. The total HR Policies of these State run enterprises need to be revised. It may sound harsh, but a series of such reforms will change the whole scenario of these loss-making PSUs, The policy of ‘permanent employment’ need to be abolished by passing a law in the parliament. The HR Policies need to be similar like the Private sectors’, perform or perish, the salary package need to be incentive based and real committed workers need to rewarded with incentives and promotions and underperformers need to be fired subsequently after a few warnings. The recruitment process should be short and simplified, in order to intake the fresh batch of candidates to compensate the fired ones and finally, up gradation of Technology is essential in order to ensure smooth and efficient functioning.

These kinds of reforms will totally change the way these Public sector enterprises function and they will subsequently become competitive enough, once these enterprises start to perform and yield profits, expansion plans can be charted out, adequate funds can be pumped in by issuing IPO’s to the retail investors (General Public) not corporate investors, because again that will amount to profit sharing with the private hands, and some profits can be ploughed back.

These PSUs if run efficiently can provide sustained and continuous revenue to the government and the surplus profits can be diverted to various social sector and infrastructural projects.

The suggested reforms may seem difficult, but not impractical, Mrs.Indira Gandhi, nationalized various important banks of this country in one go, no body could stop her from doing that, the militancy in Punjab was completely suppressed in her regime, what seemed impractical or impossible was made possible or practical, a terrific leadership at the national level is what is needed.



*The story of the villager and his golden goose (for reference)
A village bought a goose from the market , to his surprise , it used to lay one golden egg every day, and he was the happiest man in the world, he would sell an egg per day ,and earned a lot of money, he was becoming rich day by day, finally he became greedy, one day this foolish villager thought , this crazy goose lays eggs one by one that too one per day, let me slaughter this goose and get all the golden eggs inside her stomach at a time, he brought his sword from the store room, caught the goose and slaughtered it, but could find only one egg in the stomach which it was supposed to lay on that day, he realized his mistake and repented, but that couldn’t bring the goose back.