For over five years, I’ve criticised ‘state creep’ on Prime Minister Modi’s watch. This tendency hit a crescendo on 5 July 2019, when the second Modi regime’s first budget was read out in parliament. While that document was riddled with state over-reach, I will remind you only of the most egregious measure: a voluntary contribution under CSR (corporate social responsibility) was converted into a criminal liability! Mercifully, it was quickly aborted, but not before it had betrayed the underlying instinct.
Inevitably, the sentiment, markets and financial indicators tanked after the Fifth July Budget. A concerned Modi tried to ‘talk up’ the economy by feting ‘wealth creators’ in his Independence Day speech, but it fell on deaf years. The markets continued to plummet.
Sensing an apocalypse, the government fired a brahmastra (ultimate weapon). It slashed corporate tax rates by 10 percentage points for all existing entities, and an even more aggressive 20 percentage points for greenfield manufacturing companies. It was a desperate, but in my world view, a hugely positive (even though I felt the stimulus could have been better designed) policy ploy to stem the panic. It half-worked. The markets abruptly reversed course, but the sentiment stayed subdued. The regime followed through with several half-measures, many of which I have applauded by clapping with one hand.
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Now imagine my delight when Finance Minister Nirmala Sitharaman announced three initiatives on Wednesday (20 November 2019) which I could, finally, greet with uninhibited, prolonged, two-hand clapping:
- Privatisation (yay, not disinvestment) of BPCL, Concor and Shipping Corporation
- Moratorium on spectrum charges, thereby providing cash flow relief to beleaguered telcos, and saving India from the ignominy of a bankruptcy filing by at least one global titan
- Supersession of the DHFL Board, with an implied promise that the devastation caused by the ILFS bankruptcy would be avoided
Finally, after what has seemed like an eternal wait of five years and six months, Modi-nomics seems to be trusting private enterprise and competitive markets. Yay again; clap again; ending with the ‘thumbs up’ emoji!
Oh Wait. What’s This BABU-JAAL?
But now I feel compelled to sober down. And warn the Modi regime about the dangers of an omnipresent, ever-lurking BABU-JAAL (bureaucratic cobwebs), a perfidious acronym constructed as follows:
- The first B stands for PCL; the second B means SNL
- JA stands for et irways
- L stands for a common letter in IFS and DHF
Confused? Can’t figure it out? Well, let me explain. It’s been my perennial fear (even a phobia, I admit) that whenever any political leadership gathers the courage to launch pro-market policies, India’s entrenched and control-freak bureaucracy just swoops down and trusses up the fledgling in impossible-to-navigate cobwebs, effectively killing the doctrine.
So, I wish to warn M/s Modi & Sitharaman – please be on your guard. Please do not allow your babus (bureaucrats) to stymie these moves. And since fore-informed is fore-warned, let me show you how these BABU-JAAL conspiracies could play out.
BPCL Could be Forced to go the HPCL/GSPC Way
The BPCL privatisation is perhaps the most audacious market-friendly initiative by PM Modi. In one shot, he could get USD 10 billion into the coffers and eclipse more than half his USD 15 billion disinvestment target for the current budget. Of course, much beyond fiscal efficiency, this sale will signal India’s intent to the world: we are ready to bite the bullet and propel our economy to an entirely new trajectory. But unfortunately, as always, the establishment has inserted a few blind spots which could swallow the whole effort:
- The Numaligarh refinery will have to be ‘de-merged’ out of BPCL and sold to another public sector company, perhaps Oil India or Indian Oil. I have no quarrel with the strategic intent behind this action, that is, to secure fuel supplies for India’s armed forces on the eastern border with China. But inevitably, this exercise will take time, since it shall involve a third-party valuation followed by the corporate process of ‘extracting’ Numaligarh from BPCL’s balance sheet. I doubt if this process could get completed before 31 March 2020. So why is that a blind spot? Read on.
- If BPCL is not sold in this financial year, the government could miss its disinvestment target of Rs 1.05 lakh cr (USD 15 billion) by a mile, causing an embarrassing fiscal slippage. So now you get how the BABU-JAAL will be spread? The establishment will say “we can’t afford to slip on the fiscal target; and since it’s impossible to complete the sale process of BPCL by 31 March, let’s do the tried and trusted trick. Let’s do what we did with HPCL and GSPC, which were forced down ONGC’s throat. Let’s shove BPCL down IOC’s gullet this time! We will account for USD 10 billion in our ‘disinvestment’ proceeds, the fiscal target will be met, and BPCL will effectively stay in public hands”.
There you go again: a terrific idea, caught and choked in the BABU-JAAL (bureaucratic cobwebs).
Please M/s Modi & Sitharaman, do not allow them to booby-trap you. Please defer the sale to next year even if the fiscal deficit slips a bit; but do ensure that it is a genuine third-party privatisation. The gains for India will be much larger than a few decimal points of budgetary slippage. If anything, you should nix the Rs 70,000 crore infusion into the comatose BSNL-MTNL merger to neutralise this delay. Frankly, you can double the bounty by selling BPCL and abandoning the BSNL-MTNL misadventure.
Recall ILFS & Jet Airways as You Take on DHFL
I was also thrilled when RBI pro-actively superseded DHFL’s board, appointing a seasoned professional to take charge. I thought the regulator had resolved to save the asset and inflict the pain on truant owners/managers. Unfortunately, I am sensing a BABU-JAAL here too. The fear is that the Insolvency & Bankruptcy Code will be invoked, forcing lenders to take a write-down and gum up the credit markets yet again. Worse, DHFL could close shop, in a bizarre action-replay of ILFS and Jet Airways.
I beseech M/s Modi & Sitharaman – do not fall into this BABU-JAAL; please do whatever you need to, provide whatever liquidity is required, but do ensure that DHFL remains a solvent, going concern. Please do not repeat the epic mistakes made when ILFS and Jet Airways were shuttered, which junked the underlying assets, even as the credit markets seized up. It was a double whammy which nearly killed us. We may not survive a triple whammy if we do the same to DHFL.
Finally, we turn to the cash flow relief to Vodafone and Airtel via the 2-year moratorium on spectrum charges. It’s a tiny, but welcome, concession. Although, the BABU-JAAL is starkly visible here too. There is no attempt to correct the definition of Adjusted Gross Revenue which, in my humble opinion (and with immense deference to the Hon’ble Supreme Court), is utterly flawed. Imagine paying spectrum charges on foreign exchange gains and losses! As the dollar moves up and down against the rupee, the spectrum liability yo-yos with it. Can it get more specious/suspicious/surreal?
So, in the end, I can only repeat what I said at the very beginning: these policy reforms are sensible — but protect them against the BABU-JAAL (bureaucratic cobwebs).
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