All Newspaper editorials in one place – February 15, 2024




February 15, 2024

Farming consensus

The Centre must address grievances of farmers through talks


Farmers from Punjab, in their thousands, have assembled at three points along the border with Haryana, where they have been stopped from marching to Delhi. The protesters are demanding legally guaranteed MSP for crops, debt waiver, cancellation of international agreements impacting the agriculture sector, and a minimum pension of ₹5,000 for farmers and agriculture labour. Some of these demands were raised during their earlier protest in 2021-22, which was called off after the BJP-led central government withdrew three controversial laws that had sought to reform the agriculture sector. The protest now is spearheaded by the SKM (non-political), a splinter group of the body that had led the earlier protest. The split signifies fissures in the interest groups across Haryana, Punjab and western U.P. and Rajasthan. There are at least three other strands of protests gathering strength. Farmers in western U.P. affected by the Jewar airport project and Yamuna Expressway are up in arms. In Haryana’s Sonipat, farmers are protesting land acquisition for power cables. The original SKM and several trade unions have called for a national rural and industrial strike on February 16, with overlapping and additional demands that include the repeal of four labour codes.


The government has opened talks with the Punjab farmers, but a legal guarantee of MSP appears unlikely. The police in Haryana and Delhi have stopped the farmers more than 200 km away from Delhi as they are resolute that the farmers will not be allowed near the border of the national capital where they had laid siege in 2021-22. The MSP-based procurement by the FCI has been the bedrock of food security, but the case for its reform is strong. Surplus producers of grain have benefited from the MSP scheme, but the scheme bypasses subsistence farmers in poorer regions. This uneven geographical spread of procurement has also led to unsustainable farm practices in some areas, while farmers in other regions of the country are always on the edge of penury. All this calls for a revamping of the public support for farming, which is essential for reasons that include national food security. This can be achieved better through wide political consultation and by encouraging the beneficiaries of the current system to diversify production and increase productivity. The political undertones of the protest on the eve of the Lok Sabha election also cannot be overlooked. The farm sector needs a new model of public support. It cannot be left to the mercy of the market. The government should lead the efforts to create a national consensus on this question.





February 15, 2024

Pension concerns

A hike in minimum pension will help the lower strata among the retired


The recommendation of the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) for a 0.1-percentage-point increase in provident fund (PF) deposits for 2023-24 should not be surprising, as it is in tune with what the EPFO did last year. However, the recommended rate of 8.25% is 0.4-percentage points lower than in 2018-19, a pre-election year like 2023-24. If cleared by the Union Finance Ministry, it will involve the transfer of a record ₹1,07,000 crore to EPF members. But the development has not pleased those with a long-standing demand for an increase in the minimum pension of ₹1,000. When in the opposition, the ruling Bharatiya Janata Party had demanded that the pension be raised to ₹3,000 (the UPA government had proposed ₹1,000 a month). On coming to power in 2014, the BJP carried out faithfully, with effect from September 2014, what was finalised by its predecessor, benefitting approximately 20.5 lakh pensioners. Months ago, the Finance Ministry had rejected a proposal to double the minimum pension amount, citing a “huge rise” in the budgetary support needed under the Employees’ Pension Scheme (EPS), 1995. There is one more component in the budgetary support which refers to the Central government’s contribution at 1.16% of wages up to an amount of ₹15,000 a month. For FY2024-25, the Ministry has projected ₹10,950 crore as budgetary support against the revised estimate of ₹ 9,760 crore for the current year. The Finance Ministry calculates that a 100% rise in the minimum pension would be more than the proportionate increase in the overall budgetary support as numerous pensioners had received much less than ₹1,000 as monthly pension till 2014.


Describing the EPS as a “Defined Contribution-Defined Benefit” social security scheme, the government said in the Rajya Sabha that all benefits were paid out of accumulations through contributions, and as per the fund’s valuation as on March 31, 2019, there was “an actuarial deficit.” However, this argument has been virtually demolished in the EPFO’s annual report (2022-23). Notwithstanding its reasons not to hike the minimum pension, the government must note that the difference between the minimum and original pension was about ₹970 crore for 2022-23. So, the doubling of minimum pension is no strain. There are other key issues too such as equating the amount of spouse pension on a par with what a member-pensioner gets. In the case of higher PF pension, the rules have been framed after the 2022 Supreme Court judgment wherein most of the pre-2014 retirees would not be covered; there are around four lakh such applications for higher pension. A more expansive approach to PF pension matters will help senior citizens.



February 15, 2024

Plainly on MSP

Government must talk to farmers but legal guarantee of MSP will be a logistical nightmare at best, fiscal disaster at worst


Farmers on a tractor march to the national capital are primarily seeking a legal guarantee on the minimum support price (MSP) for various crops announced by the Centre. Their demand is illogical and impractical. The government can “guarantee” MSP only on the crops and the quantities that it buys. It cannot obviously procure the entire produce brought by farmers to the mandis. Nor can it enforce MSP on private trade. The latter will choose to not purchase at all if asked to pay more than the prevailing supply-and-demand determined rate. A third option could be the trade buying at the market-clearing price and the government transferring the difference between it and the higher MSP to farmers’ bank accounts. But that requires generating data on how much of produce each farmer has sold and at what price. It, in turn, creates scope for market manipulation: The trade may convince farmers to sell at below normal equilibrium price and make the government foot the higher difference vis-à-vis the MSP.


Simply put, guaranteeing MSP through legislation will result in a logistical nightmare at best and fiscal disaster at worst. It’s true that farming is a business with high price as well as production risks, more so with the growing vagaries of climate change. But the solution for production loss — whether due to dry weather, unseasonal rain or pest attack — lies in crop insurance and timely payout of claims. Prices, on the other hand, basically reflect what the market wants. Cost-plus MSPs oblivious to demand conditions would only distort farmers’ production decisions, leading to over-supply of some crops and under-supply of others. The net outcome is more, not less, price volatility. What farmers probably require is a minimum income support — MIS, not MSP. That can be given via per-acre or per-farmer direct benefit transfers. Assured of a minimum income, they can make informed market-driven decisions on what crops to grow. The current MSP regime is encouraging farmers to mainly plant wheat, rice and sugarcane. An MIS, in combination with a phase-out of water, electricity and fertiliser subsidies, will induce much-needed crop diversification.


The government must engage with the protesting farmers. The approach of confrontation — from sealing state borders with cement barricades and drilling iron nails into roads to deploying drones for dropping teargas shells — is not going to help. Farm agitations aren’t new to India. The capital itself has seen much bigger mobilisations before, including Mahendra Singh Tikait’s famous week-long rally of half-a-million cane growers at the Boat Club lawns in October 1988. Governments of those times could handle such demonstrations without over-reaction. The Narendra Modi government should learn from its own experience of the farm laws. If it had emphasised dialogue more, and not treated marchers as anti-national/criminals, it may not have had to repeal those well-intended laws. It should not repeat the mistake.





February 15, 2024

Governor in a china shop

By overstepping constraints of his office, stoking controversy, Tamil Nadu Governor R N Ravi makes his position untenable


Non-BJP ruled states — from West Bengal to Punjab, and Kerala — showcase a dismal pattern: The Governor is at loggerheads with the elected government. The politicisation of the gubernatorial office goes back decades, of course. But recent instances of the Governor’s over-reach, ranging from the refusal to assent to bills passed by the assembly, to tussles over appointment of university vice-chancellors, have sharpened disquieting questions about the diminishment of a constitutional office. In this context, the conduct of Tamil Nadu Governor R N Ravi stands out — for his churlishness vis-à-vis the DMK government, and also, and more disturbingly, his lack of sensitivity and care in stoking long-settled ideological faultlines.


On Monday, Governor Ravi entered the record books for the “shortest address” by a governor to a state assembly. “This address has numerous passages with which I convincingly disagree… lending my voice to them could constitute a constitutional travesty,” he said, before walking out. He also claimed that “due respect” had not been given to the national anthem — the custom in the TN assembly is for the House to sing “Tamil Thai Vazhthu” at the start of session and close with the national anthem. This is hardly the first time that Ravi has stoked controversy. Last year, he refused to read out sections of his speech in the assembly that referred to the Dravidian model of governance and leaders like Periyar E V Ramasamy, former chief ministers, K Kamaraj of the Congress and C N Annadurai and M Karunanidhi of the DMK, and B R Ambedkar. He said that the state should be called “Tamizhagam” instead of Tamil Nadu. Given his own record, therefore, Governor Ravi’s invocation of the constitutional principle on Monday was ironical. In 1974, a seven-judge bench of the Supreme Court ruled in Shamsher Singh v State of Punjab that a governor can act “only upon and in accordance with the aid and advice of their ministers”. In his address to the House, the governor — like the President in Parliament — outlines the vision of the government.


In the first decades after Independence, significant issues in what is now Tamil Nadu formed the core of what is colloquially called the “North-South divide”. That these were accommodated and resolved within the federal and democratic framework is a credit to India’s political system. By trying to reopen debates long-settled, by constantly overstepping the bounds of his office, R N Ravi is making his own position increasingly untenable.





February 15, 2024

One and enough

When it comes to single people, something to learn from the large-heartedness of a small European municipality


The day after Valentine’s Day, littered with chocolate wrappers and tinsel, may be the perfect occasion to reflect on all the ways in which this world — “built for two”, as Lana Del Rey sang in a modern love classic — takes a toll on single people. It’s not as if the other 364 days of the year are any easier on the uncoupled. From having to foot the cost of living all by their lonesome selves to fielding pitiful looks when arriving solo at “plus-one” events, singles have it tough. Which is why it is heartening that a municipality in Belgium has adopted a charter to “no longer think from the perspective of the traditional family as the norm, but to strive for measures that are neutral to living arrangements.”


This move by the municipal council of Woluwe-Saint-Pierre is being hailed as the first of its kind in Belgium — perhaps, even in Europe. It is a response to a demographic trend that has been evident for several years now in much of the developed world: The rising number of single people, including those who have made the deliberate choice to not mingle. Study after study of this group has shown that many of these individuals describe their lives as being “authentic” and “happy”, yet such stories of fulfilment are invisibilised in a culture that sees coupledom as natural and inevitable. The cost of the accompanying prejudice is often high — such as when landlords refuse to rent houses to individuals, citing a preference for “families”, or when single people are barred, by law, from making certain kinds of reproductive choices.


There is, then, something to learn from the large-heartedness of a small European municipality: When it comes to single people, put away your pitchforks and your pity. After all, at some point in life, due to death, divorce or other circumstances, everyone is alone.




February 15, 2024

Champs Only At Home

Indian startups have transformed the domestic market. But the real test is doing it abroad


Two of India’s most popular online payment options, UPI and RuPay, recently spread to three countries. Sri Lanka, Mauritius and UAE will allow these payment options in their domestic market. UPI and RuPay are both state-backed initiatives. Their international acceptance is a result of good tech and India’s diplomatic heft. But tech developed by private startups doesn’t travel well abroad. For example, Zomato shut at least 10 of its foreign subsidiaries last year.


Global presence matters | Startup Genome, a research outfit, studied the impact of expanding a firm’s customer base across markets. It found that when startups target a customer base beyond the home market from an early stage, there are all-round benefits. A bigger pool of customers to tap into will also lead to faster growth.


India, an outlier | This general principle doesn’t apply to India. India was identified as a market where startups that sought retail customers could become unicorns (valued at over $1 billion) by doing business only at home. The sheer size of Indian market provides an easier path to a unicorn status than it would for an Israeli startup.


China treads a different path | The same logic should apply to China, the second most populous country. Chinese startups, however, have made a bigger splash overseas than their Indian counterparts. Startup Genome ranks Shanghai on par with Tel Aviv, Berlin and Singapore as leading markets for innovation. Of course, Silicon Valley is right on top along with New York and London.


Flip side of size | Indian startups have been presented with a large and underserved domestic market to tap. The focus naturally has been the domestic consumer base. But there’s a downside to it. An eager home market can be served without necessarily innovating much. But going abroad requires standing out with a novel offering. Innovation must be the vehicle for global expansion. That’s been lacking so far.


Exceptions to the rule | It’s newer Indian tech companies, catering to other businesses, not retail consumers, which have been built on an overseas client base. Firms in the market for software as-a-service are an example. But it remains to be seen if they can evolve into more sophisticated firms. Something an earlier generation of software companies haven’t quite managed.


An economy set to be the world’s third largest needs to see more innovation. We need global champions.




February 15, 2024

Wearying Rules

Kurta-pyjama in navy mess is welcome. But now there’s desi dress code. Let’s be cool about clothes


Naval establishments will now allow officers and sailors to wear kurta-pyjama in the mess, as part of a mission to Indianise military traditions and undo ‘vestiges of the colonial era’. That’s fine and dandy. But navy has replaced one dress code for another, by issuing precise guidelines on cut and colour, collar, and cuff. Dress codes, of course, are meant to make the social order clear. At one point, they demarcated the nobility from the rest, sumptuary laws in Europe dictated appropriate attire for each class, Indian caste rules prohibited some kinds of dress and ornament for subordinated castes, in some regions they were not allowed to cover their upper bodies. Women have had to hide their faces and bodies in purdah and ghoonghat. Elite clubs with colonial roots declare their social cachet by insisting on western formal dress. Occasion-wear, for weddings, funerals and high-society events, still has clear protocols for men and women. Gender boundaries are patrolled through clothing, everywhere in the world.


Flouting these rules takes social courage. It’s no wonder that social rebellion has expressed itself through discarded dress codes. The swadeshi movement made a bonfire of Western vanities. Mahatma’s insistence on homespun khadi rejected colonial exploitation and conveyed an ethic of simple dignity. Of course, dress codes like uniforms also impose institutional belonging, visually wiping out social differences and inequalities. It makes sense for schools, militaries, monasteries, and guerrilla groups to kit out individuals in the costume of the collective.


But control and standardisation serve little purpose in the wider world. Dress codes should be for strictly limited purposes, and a sense of irony and playfulness about all such impositions can only help the cause of freedom. Take off the tie, loosen the collar and breathe easy.





February 15, 2024

How Super Bowl Can Serve Desi Exporters

Events like IPL serve as economic barometers


Tentpole events like the ongoing NFL Super Bowl in the US, or IPL that starts this season next month, weave an economic narrative through inclusions, exclusions and creatives. Prospects of pitching to a broad spectrum of consumers push spot rates to jaw-dropping levels. Price sets the entry barrier for only those companies in the pink of health. The sheer number of eyeballs are suited to raising brand awareness, rather than pushing products, which acquires traction in segmented marketing. New brands use these events as a coming-out party while older, more established ones can’t bypass them to reinforce their value proposition. In an era of atomised marketing, where individual marketing messages can be delivered on mobiles based on consumer behaviour, Super Bowl and IPL represent brand tournaments with a definitive set of winners.


Yet, like the tournaments they showcase, the set of brand winners is rarely constant. Entire industries being absent from such marketing extravaganzas signals stress points in the economy, be it automobiles, tech companies or consumer electronics. Sluggish sales, sustainability concerns, or layoffs make for sombre messaging that does not sit well with the celebration of sport. An economy downcast because of inflation or unemployment affects single-event marketing plans of consumer goods companies. Asset classes, too, have performance-based representation. Startups make an appearance when investor interest is high.


Creatives also have a varying storyline, reinforcing the economic mood. Brand messaging is usually more upbeat when economic uncertainty recedes. Deciphering the economic context in which these events are held is quite easy actually, and fairly accurate to boot. No high frequency economic indicator is spot on, and ad content offers its own unique perspective. Viewership of around 10 crore for a single event allows for periodic sampling of consumer and producer mood. Super Bowl helps reveal economic preferences that serve exporters in Asia. That is a fair amount of signalling.





February 15, 2024

When Farmers End Up Being Anti-Farmer


A legally guaranteed MSP, as demanded by protesting farmers at Delhi’s borders, is a bad idea — especially for farmers. GoI’s goal is to improve the farm sector, resulting in higher income for farmers. It is right in ruling out this particular demand, which will not benefit the bulk of farmers who have small holdings, often working as farm and non-farm labour. A voluble few holding up benefits for many makes neither good economics nor canny politics.


A guaranteed MSP will undermine sustainability of agriculture, impacting small farmers disproportionately. It encourages cultivation of highest-yield crops rather than those best suited to a region. This has a ruinous impact on water levels and soil health, and adversely affects farmer incomes, public health and food security. The environmental fallout of an MSP regime that continues to incentivise paddy cultivation in Punjab is an example of what not to do across agri products. What is required is stepping up public investment in agri. Guaranteed MSP would make that impossible. It would have inflationary impacts, make our farm products globally uncompetitive, and raise barriers for agri commodity exports.


Farmers need remunerative prices, and letting the market determine prices makes ample sense. In this context, GoI must direct resources on building mechanisms to safeguard farmers against fluctuations, intervening when required. It must also create conditions for efficient markets, facilitating market access, addressing challenges of natural resource management and growing safe food for better incomes. Rather than guaranteed MSP for every crop, GoI should offer support for efficient, sustainable, tech-driven production. The protesting farmers are, rather ironically, being anti-farmer.




February 15, 2024

States of the Union

Rhetoric over resource-sharing does not help the Union


Three southern States — Karnataka, Kerala and Tamil Nadu — have raised a red flag against the Centre over revenue sharing by the latter. Some of the complaints of the States – the higher share of cesses and surcharges in gross tax revenue shrinking the divisible pool, the revenue sharing formula of finance commissions rewarding States which have not controlled population or raised their incomes – are not without merit.


That said, the 15th finance Commission did well to introduce a weightage of 12.5 per cent for ‘demographic performance’, to offset to some extent the weight of 15 per cent and 45 per cent for population and ‘distance’ from highest per capita income, respectively. There is scope for these issues to be resolved amicably, without irresponsibly upping the ante. The States can make a representation before the 16th Finance Commission, which has just been constituted. The total transfers to States (devolution plus grants) was estimated by the 15th Finance Commission three years back at over half the divisible pool for the 2021-26 period (41 per cent ‘untied’ devolution and the rest grants). Fiscal stress in crisis years may have impacted grants, for which the Centre cannot be blamed. States also need to realise that release of grants or loans can be done only after following due processes. They need to monitor the end use of performance-linked funds better. States also need to improve their own revenues, besides cutting down on irresponsible expenditure, be it unfunded subsidies, freebies or promises such as shifting to the old pension scheme, which will hit future fiscal capacities.


States can look at measures to augment their own taxes wherever there is room to do so, including a review of motor vehicle taxes, including green tax. States’ inability to increase their own non-tax revenue has been a constant pain point. While mineral-rich States such as Chhattisgarh, Jharkhand and Odisha have a non-tax revenue between 4 and 6 per cent of GSDP, larger States such as Tamil Nadu, Karnataka, Maharashtra and Gujarat earn less than 1 per cent of their GSDP from non-tax revenue. According to RBI, share of States’ non tax revenue share in their total revenue has declined from more than 12 per cent in the period between FY04 and FY09 to 7.6 per cent in the period between FY21 and FY23. Water and electricity tariff reforms could boost non-tax revenues.


The southern States feel unrewarded for achievements in population control and income growth, and understandably so. But it is wrong for them to argue that they get far less by way of taxes than what they contribute to the Union, because a Union is based on resource-sharing between strong and weak regions. Besides, the southern States have benefited from the north by way of cheap labour supply and even minerals. But there are some specifics here that can be addressed. For instance, Karnataka’s share has fallen the most steeply of all States between the 14th and 15th Finance Commission, from 4.7 per cent to 3.6 per cent of the divisible pool. This can be debated, but not in rhetorical terms. Contentious issues regarding devolution can be brought up before the new finance panel.





February 15, 2024

External exposure

Foreign flows will demand strong fiscal management


The White Paper, recently presented by the Union government, emphasised how economic conditions had improved over the past 10 years under the National Democratic Alliance (NDA) government, compared to the two terms of the United Progressive Alliance (UPA) regime (2004-14). As this newspaper has argued in this context, there is little debate that conditions have indeed improved significantly over the past 10 years, but public debt and the general government deficit remain elevated. In fact, the headline fiscal deficit, expressed as a percentage of gross domestic product (GDP), for the Union government in 2023-24, according to the Revised Estimate, was at 5.8 per cent, compared to 4.5 per cent in 2013-14. However, this is largely because of the Covid-19-related disruption. Although the UPA government also dealt with the implications of the 2008 global financial crisis, which led to a significant expansion in the fiscal deficit, the economic impact of the Covid-19 pandemic was much more severe.


Besides, there are at least two qualitative distinctions in the way government finances are managed. First, the quality of reporting has improved, particularly after the pandemic, and the Union Budget is reflecting the actual expenditure. Until a few years ago, the government used off-Budget borrowing to fund expenditures. Second, the quality of expenditure itself has improved considerably. The Union government’s capital expenditure, for instance, has been pegged at 3.4 per cent of GDP in 2024-25. This will not only help the economy, in general, but also give flexibility to the government in terms of containing expenditure over time. As private investment picks up pace, the government can reduce capital expenditure and focus on consolidating its finances. Capital expenditure as part of total expenditure (net of interest payments) was 28 per cent in 2023-24, compared with 16 per cent in 2013-14.


Meanwhile, the NDA government’s revenue expenditure has grown at a slow pace compared to that of the UPA government. This is partly because of effective management and better targeting of subsidies. As the White Paper underscored, revenue expenditure grew by a compound annual growth rate of 9.9 per cent during the NDA’s two tenures, against 14.2 per cent in the previous 10 years. At a broader level, it is also worth noting that deft management on the external front by the Reserve Bank of India (RBI) increased the policy space for the government. However, despite all the positives, the need for fiscal consolidation cannot be overstated. For instance, the Government of India bonds will be added to the emerging market bond index of JP Morgan. Given that assets worth about $230 billion follow the index, about $23 billion is expected to come to India. Some other global indices are also reportedly considering the inclusion of Indian bonds.


The increased flow of foreign money will naturally reduce the pressure on domestic savings to finance the fiscal deficit. While this would lead to a lower cost of money domestically, it would increase the need for greater fiscal discipline and a lower deficit. As RBI Governor Shaktikanta Das rightly noted last year in this context, index inclusion is a double-edged sword. Foreign ownership of government bonds will increase over time, which would demand better and predictable fiscal management. Shifts in index weighting can lead to large outflows, which will also demand agile forex management by the RBI to avoid excess currency volatility. Higher foreign flows in the debt market will be an addition to the list of reasons why India needs strong fiscal management.





February 15, 2024

Digital future

New features will increase digital currency adoption


The Reserve Bank of India (RBI) has been issuing the central bank digital currency (CBDC) on a pilot basis from late 2022. Based on blockchain technology, in the retail segment, CBDC-R was launched within a closed user group (CUG) comprising participating customers and merchants. The CBDC-R pilot currently enables person-to-person and person-to-merchant transactions using digital rupee wallets. Armed with the experience thus far, the RBI has now proposed to enable additional use cases like programmability and offline functionality, which could not only increase the adoption of the digital currency but also help attain public policy goals. As the central bank explained in its announcement, “programmability will permit users like, for instance, government agencies to ensure that payments are made for defined benefits”. This means that certain built-in rules will impose restrictions on the usage of money.


With such features, the government would be able to ensure that the money is used for the intended purpose. For instance, if the government or any other agency is making transfers to school students in the digital currency for buying books, it will be used only in bookshops. Depending on the design, if the money remains unused for a given period, it can return to the sender’s account. This will ensure that the money is spent in the desired manner. It will also reduce the risk of fraud. Such functions can also be used by private firms to meet specified expenditures like fuel costs and business travel expenses of employees. Aside from the use in retail segments, improved functions can also increase adoption in financial markets. The other important aspect touched upon in the RBI statement was regarding the offline usability of CBDC. It will enable transactions in areas with poor or limited internet connectivity.


If properly implemented, both these functions can improve the spending efficiency of the government and enhance citizens’ welfare. It is often debated whether the government should provide price subsidies or do cash transfers. The recent experience in India suggests that cash transfers are more efficient. Programmability in the digital currency will further tilt the balance in favour of cash transfers with a fair amount of certainty that the money will be used for the intended purpose. It is also worth noting here that programmability will not end fungibility. As explained by RBI officials at a recent press conference, fungibility will be on hold only for a limited period, which will allow it to fulfil the purpose.


Given the digital infrastructure India has created over the past few years, particularly in the area of payments, the possibility of using the CBDC could be fairly substantial. To be sure, implementing such programmes on scale will take time. Often the financially excluded are also digitally excluded. The use of the CBDC requires basic digital literacy and access to a mobile phone. However, since the CBDC is still in the pilot stage, the experience of extending usage and functioning will inform the RBI to make necessary changes before it is issued at an increased scale. The experience of the RBI will also be carefully watched by other large central banks that are studying the possible issuance of CBDCs.





February 15, 2024

Repair telecom tariffs

Operators should not dither on user charge hike as an early decision will be beneficial for all


The Union Cabinet last week approved spectrum auctions that will take place sometime later this year and has set the reserve price across multiple bands at around Rs.96,000 crore. However, the government as well as the industry is not hopeful of a very robust response. Basically, the spectrum, which will be put up for auctions, is what remained unsold in July 2022. For Bharti Airtel and Vodafone Idea, the 20-year lease period for certain bands is coming to an end, so they need to renew them. Against a reserve price of Rs.96,000 crore, all the government may be able to get is around Rs.10,000-12,000 crore.


The reason for such a tepid response is that the operators bought spectrum worth Rs.1.5 trillion in auctions held in July 2022, the bulk of which was for 5G services. It’s been more than a year since 5G services were launched by Bharti and Reliance Jio but monetisation is nowhere on the horizon. Furthermore, operators have enough spectrum, so there’s no rush to buy and store.


Spectrum anyway has ceased to be an issue for the telecom sector. Tariffs are a real concern, especially if there’s no scope to monetise 5G services. Bharti Airtel’s managing director Gopal Vittal said that going forward the improvement in average revenue per user will be through tariff repair or tariff hikes rather than monetising 5G services. In an interview to this paper, he said 4G and 5G are just better, more efficient ways of delivering the same outcome, so there’s no possibility of charging differential rates for them.


If operators can’t charge a premium for 5G and are fully aware that Arpu improvement can happen only through tariff repair, why are they not hiking the same? The answer lies in the competitive nature of the sector. There are three players, but the real competition is between Bharti and Jio. Currently Bharti’s tariffs are at a premium to Jio’s and any first move on tariff hike made by Bharti would widen the gap whereby it risks losing users. Jio being the largest operator in terms of user base, generally remains wary of tariff hikes. However, with its Arpu remaining flat sequentially at Rs.181 in the October-December quarter, it now does not have much of an option.


Bharti’s Arpu at Rs.208 is now above its target of Rs.200, but as Vittal said, the company wants to reach Rs.300, for which only organic tariff readjustments will not do. Both Jio and Bharti have so far, been achieving Arpu growth through a mix of tariff adjustments and subscriber growth—Bharti by hiking entry level tariffs for 2G users, and Jio by launching JioPhone so that 2G users from other networks move to its 4G network. However, both seem to have reached a saturation point now and need to look at headline tariff hikes. In the past, operators have hiked headline tariffs together, but that was after the government nudged them to do so—the last major hike was undertaken in 2021. Analysts say that a hike in the range of 20% may take place after the general elections. Telecom tariffs are very low in the country and a rise is not likely to be an issue before the elections. Operators should not be in a wait-and-watch mode as an early decision on tariff repair will be beneficial for all.


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