Millennium Post

Financial crunch

Traditional models of market privatisation and wealth creation in India have failed to sustainably achieve their objectives, necessitating unconventional means to do the same

Owners of pubs and liquor outlets in Bengaluru have told the Karnataka government that they could help the state government with additional Rs 1,000 crore this year if they are allowed to keep their outlets open for one more hour daily. The state government might even be tempted to accept the offer as it is in dire straits, falling short of Rs 2,000 crore in meeting its financial obligations.

The Kerala government is reportedly considering cancelling the dry day on the first day of each month, traditionally the salary day and other dry holidays, obviously to deal with sagging revenues, although the ostensible reason cited is to ease the inconvenience of hard-working IT professionals who are hard-pressed for free time.

Revenue from liquor sales is one of the primary sources of income for the Kerala government, which has already been constantly complaining about delays by the Central government in paying its GST share and other central kitty reimbursements.

The Central government is itself facing a severe financial crunch on account of inclement financial and economic conditions in the country and has exhausted all regular options, including all possible drawdowns from the Reserve Bank of India.

Attention has now turned to legalised betting as a means of raising resources for the government. A Law Commission report has already prepared a report on the possibilities, which has been placed in the public domain to elicit views on what could be a controversial choice. Already there is a significant build-up of public opinion in favour of legalising and regulating betting, particularly relating to sports and online games.

A Federation of Indian Chamber of Commerce and Industry (FICCI) report has put the size of India's underground betting market size at Rs 3 lakh-crore and lamented that India was losing colossal amounts that should have been available for development, only if betting was regulated and taxed.

FICCI has been arguing that regulation will not only restrict the illegal activities but generate revenue for the government to invest in social sectors, apart from the sports sector. The money earned from betting can be used to augment infrastructure for other sports and tourist facilities. It further pointed out, with examples of the United Kingdom and China, that globally sports betting and gambling are utilised to generate funds for good causes and promotion of sports.

It may not be long before more unconventional means are suggested to boost government revenues. And not even prostitution, the oldest profession known to man, may be spared. In fact, its modern version of the escort industry is already a well-established business and a money-spinner in many parts of the world.

What all this leads to is a failure of the conventional model of creating wealth to run governments. At least in India that is the case. The model we have followed so far has simply failed to deliver. In the beginning, we wanted a government that excelled in everything, including the creation of wealth. And the model did not take much time to debunk. Then there was the so-called mixed economy, where the state sector competed with the private sector, doing neither any good.

Now one cycle seems to have been completed, with the government realising that the government has no business to be in business. But this has not meant the opening of the floodgates for the private sector. It is too early to pronounce a verdict but the experience so far indicates signs of crony capitalism creeping into the system. Certain preferred corporate houses have garnered all the benefits with the exclusion of almost the entire field.

We seem to be getting into a situation where monopolies, which we managed to get rid of with great difficulty and economic cost, are staging a grand come back. Some of the preferred players are already pocketing everything, making it far from a level playing field.

Reliance Jio's entry into the telecom sector has already led to the shrinkage of the industry by a third and the industry has turned nearly sick. The rest of the field has been forced to burn cash in a most unsustainable manner to stay afloat. Bharti Airtel and Vodafone Idea, the two remaining major players, have reported historic losses. Vodafone Idea has declared a loss of Rs 50,922 crore while Bharti Airtel has reported a loss of Rs 22,830 crore for the second quarter alone. A committee of secretaries is already looking at ways to bail the sector out.

The problem is not restricted to the telecom sector. The banking sector, with its huge exposure to the telecom companies, is also bearing the heat and this is no good news for the banks, already burdened with unbearable levels of toxic assets.

If this is how Indian privatisation is playing out, we are bound to end up much worse than the worst that we had hoped we had passed.

Views expressed are strictly personal

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