More sectors need to be opened up, though we have come a long way since government monopolies exploited customers…
08-Jul-2011
My 25-year-old investment banker nephew has two mobile connections. One is a Blackberry on which he conducts office business and also connects with buddies on BB messenger group. The other is a 3G connection, which he uses to watch videos, share pictures, etc. He’s awaiting transfer to Mumbai and this will mean swapping numbers. This will cause him much inconvenience. He will be offline for several hours before he can synch everything to his new number.
Those were the days!
In 1996, it took me two months to get a landline. Friends marvelled that it came through so fast — I lived in an “efficient” service area.
1996 was also when mobile services were launched. My first handset, a wedding gift, weighed half a kg. A mobile connection was then a status symbol. It cost Rs16.80/minute to receive a call (the rate is engraved in my memory). So, while I flaunted the mobile proudly, I used it very sparingly. Of course, it cost Rs8/minute to make an STD call from Delhi to Bombay (as it was then called). So the mobile didn’t seem all that expensive.
I also got an internet connection in 1996 after queuing up for two days, and submitting various forms, duly attested by a gazetted officer, at the monopoly provider, VSNL, which charged Rs60/hr for a pathetic dialup. In addition, I paid Rs30/hr to my landline service provider, the monopoly MTNL, to get online. That year, due to a family emergency, I had to fly Air India from Delhi to Calcutta (as it was then called). The one-way economy ticket cost Rs13,000 — more than the rent on my two-bedroom flat.
In the summer of 1997, I broke both hands in a three-wheeler accident. I had already booked a Maruti 800 — the people’s car. But I was still riding autos because it took months for a vehicle allotment.
My monopoly medical insurance provider, New India Assurance, only paid if I went to the “right” hospital, (that is, government) and stayed there overnight. Staying overnight was no problem. It took only two hours to rush through the admission — after all, it was an emergency. It took two more hours to get x-rays and another hour or two before they set the broken bones and plastered my arms. All told, the costs came to just about Rs200 and I was reimbursed in six weeks.
I spent those six weeks sweating through the casts. The monopoly utility, DESU, “supplied” a sequence of 14-hour power cuts. In the middle of that, I was also served a Rs18,000 “averaged” power bill meant for somebody else. It took days of running around to sort out the clerical error. My power was cut off anyway because something went wrong while DESU was repairing a local fault.
I wasn’t particularly unlucky, except for the accident. I was doing well by most standards. I stayed in a “posh area” (GK-II, South Delhi), where real estate prices rivalled Tokyo and New York. I had power sometimes. The telephones often worked. I used email, which most Indians had barely heard of. Two daily flights connected my hometown, Calcutta, and four daily flights went to Bombay.
I had a decent white collar job, a car, a washing machine, and even a microwave. My wife and I bought the “wave” in desperation and learnt to cook everything, including dal and sabji in it, between power-cuts, while we waited six months for a gas connection.
Meanwhile my net worth increased satisfactorily. My passive investments did well. The monopoly investment service provider, UTI’s wonder-scheme, US-64, paid large mysterious “bonuses”. The monopoly life insurance provider, LIC, offered an endowment scheme that was mandatory. It not only meant a tax break, it gave “money-back”!
The tyranny of monopolies
Just 15 years ago, this was the typical YUPPIE lifestyle. This was a full five years after liberalisation began in 1991. Almost every “service”, and I use the word loosely, was still a government monopoly.
The monopolies were often very profitable. (In UTI’s case, the financials were secret.) Indeed, there was every reason for them to be profitable — all demand was funnelled to them. Given the regulatory moats protecting those businesses, they could levy any charges they pleased. It was only when competition was allowed that we realised how government-run businesses gouged captive consumers.
More, cheaper, better
In telecom, for example, charges dropped rapidly after 2000, when policy changed to allow real competition. In 2011, you pay 10 per cent or less of the 1996 rates for STD, and 5 per cent or less for (broadband) data. You now have a choice of a dozen airlines. There are 20-odd daily flights connecting Delhi-Kolkata and 40-plus for Delhi-Mumbai. An economy ticket costs 25 per cent of 1996 rates. Adjusting for 15 years of inflation, the charges monopolies routinely levied in 1996 seem totally incredible.
Of course, not everything is cheaper. If you buy a car in 2011, you pay more than in 1996. But you get a choice of 50 brand-new models from a dozen manufacturers. You can walk into a showroom, take a test drive, pick a model and colour, and drive out with the new car within an hour. A dozen financiers will line up to offer hire purchase terms. It’s similar if you buy a house.
Gouging customers
In 1996, private banks were barely a thought on the RBI’s horizon. PSU banks discouraged retail lending. UTI was still the predominant fund house and what UTI did with its corpus is well-documented! There were no insurers except LIC, GIC and New India. Only one-size fits all endowment life policies and Mediclaim were on offer. Why bother with innovative products?
It wasn’t only the government that racked up huge margins. Private sector players who had a toehold also enjoyed massive margins. Brokerages charged 1.5 per cent on every secondary market sauda. And they billed you at the highest quote of the session for a buy, and the lowest for a sale. The cash from IPO applications was an interest-free float for lead-managers and merchant bankers.
Private auto players like Maruti, Telco (now Tata Motors), M&M, Bajaj, Hero, all generated massive interest income from vehicle booking amounts. All had wait lists of several months’ worth of orders. Even the profit margins of FMCGs like Hindustan Lever and Colgate were twice as good as in more open economies. Once the economy opened up, those margins dropped.
The obvious beneficiaries are consumers. We’re still used to substandard service and erratic product quality. But things have got much, much better. It’s also not accidental that GDP growth rates jumped as competition and choice entered the Indian vocabulary.
Neither government nor the private sector used its monopolistic profits to create greater capacity, or improve efficiencies. There was no incentive. The government still wastes mountains of money but the private sector, at least, tries to get more bang for its buck.
Protected turfs remain
Many industries are still protected. Power and other infrastructure sectors are barely opening up and many remain government monopolies. Anything defence-related is a black hole. Defence suppliers are all PSUs —accountable to nobody. Their programmes go decades over schedule and often cost multiples of original estimates. Education is also moated and that explains the low literacy rate. Farming is also rigidly controlled. Retail cannot generate serious efficiency without vast investments — and that money can only come from abroad and that route is still barred.
Think how the consumer was over-charged and under-serviced for 50 years and how much competition changed the picture. Would similar efficiencies develop if the still protected sectors are opened to competition? Yes! And then, the Indian economy would jump to a new plane of higher growth. Let’s hope it happens. In 2021, I’d want to look back at 2011 and say, “Things are so much better.”
Jai Hind! Mera Bharat Mahaan!
