Editorial: Modis MTNL test

Apr 22 2014, 05:22 IST
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SummaryOnly radical restructuring can make the PSU viable

If Narendra Modi is to be PM, it is clear PSU privatisation is not going to be top on his agenda. As he repeated in his CNBC Awaaz interview last week, his focus will be professionalising PSUs. He gave several examples of PSUs in Gujarat that had been turned around, topping which was the Gujarat State Electricity Board. Modi is obviously right in that PSUs need to be given a chance to prove their mettle and, were he to become PM, he is essentially promising that PSUs will take their own decisions. So, one minister, or a small group, will not force an Air India to buy $11 billion worth of aircraft when it has no hope of being able to service the debt; nor will an MTNL or a BSNL be forced to buy 3G/BWA spectrum at an undisclosed priceto be decided a year later, in an auctionwhen their boards have not even done a cost-benefit analysis. Most important, if Modi needs to ensure PSUs get a level playing field, he has to free them of L1-itis, the necessity that a tender has to be floated for almost anything, and that a losing party can go to court and simply block expansion for years using the allegation that the tender is flawed. BSNLs loss in market leadershipnot profitscan be traced, almost to the day when, thanks to the losing vendors approaching the courts, it was not able to create enough capacity, as a result of which the Bhartis and the Vodafones got all new rural demand. This will be Modis biggest challenge, to find a way not just to free PSUs from his cabinet colleagues, but to give them operational freedom.

It would, however, be naive to think Modis view of PSUs is to give them unlimited dole. In the case of the Gujarat electricity board, the professionalisation was accompanied by realism, and farmers wereto their initial horrorcharged for the electricity being supplied to them. It is this realism that, presumably, will inform how Modi tackles PSUs. MTNL, for instance, cannot become profitable without radical surgery. Its wage bill is more than its turnover while the comparable number for a Bharti Airtel is just 5%. Increasing the topline is vital, but there arent enough Indians to raise it 20 times overMTNLs subscriber base of

3.5 million hasnt changed since FY09, but sales fell a third by FY13, as a

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