Terrific Reforms by Modi Govt, But Must Stay Wary of ‘BABU-JAAL’

Video Editor: Varun Sharma
Video Producer: Anubhav Mishra
Cameraperson: Abhishek Ranjan

Finally, after what has seemed like an eternal wait of five years and six months, ‘Modinomics’ seems to be trusting private enterprise and competitive markets. On 20 November, Finance Minister Nirmala Sitharaman announced three initiatives:

• 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 IL&FS bankruptcy would be avoided

But wait, what’s this BABU-JAAL? It’s a dangerous acronym constructed as follows:

• The first B stands for BPCL; the second B means BSNL
• JA stands for Jet Airways
• L stands for a common letter in IL&FS and DHFL

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 control-freak bureaucracy trusses up the fledgling in impossible-to-navigate cobwebs, effectively killing the doctrine. Let me show you how these BABU-JAAL conspiracies could play out.

Conspiracy #1: BPCL Forced to Go HPCL/GSPC Way

The BPCL privatisation is perhaps the most audacious market-friendly initiative by PM Modi in five-and-a-half years. But, unfortunately, a few blind spots could be there which could swallow the whole effort:

BABU-JAAL #1: Handling of Numaligarh Refinery
The Numaligarh refinery will have to be “de-merged” out of BPCL and it will be sold to another public sector company, perhaps Oil India or Indian Oil. Inevitably, this exercise will take time since it shall involve a third-party valuation and that will be followed by a fairly complex corporate process by which you can “extract” assets like Numaligarh refinery from BPCL’s balance sheet.

BABU-JAAL #2: Fixation With Divestment Target
Now, if BPCL is not sold for about Rs 70,000 crore in this financial year – that's before 31 March 2020 – the government could miss its disinvestment target of Rs 1.05 lakh crore by a mile and that could cause an embarrassing fiscal slippage.

So now you get how the BABU-JAAL will be spread?

The establishment will say:

“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 Rs 70,000 crore in our ‘disinvestment’ proceeds the fiscal target will be met and BPCL will stay in public hands.”

There you go again: How a terrific idea caught and choked in the BABU-JAAL (bureaucratic cobwebs). Please, PM Modi & FM Sitharaman, do ensure that it is a genuine third-party privatisation even if you have to defer the sale to next year, even if the fiscal deficit slips a bit.

If anything, you should nix the Rs 70,000 crore that you promised to infuse into the BSNL-MTNL merger. That's a comatose thing, that's a dead thing. You can nix that and by nixing that you can neutralise this delay.

Conspiracy #2: Copy-Paste of ILFS Approach With DHFL

Recall IL&FS & Jet Airways as you take on DHFL. I was thrilled when RBI proactively superseded DHFL’s board and they appointed a seasoned professional to take charge. Unfortunately, I am sensing a BABU-JAAL here too.

BABU-JAAL: Invoking IBC and Forcing DHFL to Shut Down
The fear is that the Insolvency & Bankruptcy Code will be invoked. That will force the lenders to take a write-down and that, in turn, will gum up the credit markets yet again.

The worse thing possible is that the DHFL could close shop. That will be a bizarre action-replay of what happened to IL&FS and Jet Airways.

I again beseech PM Modi & FM Sitharaman – please do whatever you need to provide whatever liquidity is required but do ensure that DHFL remains a solvent, going concern. That the asset is salvaged.

Conspiracy #3: Forcing Telcos to Pay Charges of Forex Gains and Losses

Finally, we turn to the cash flow relief to Vodafone and Airtel via the two-year moratorium on spectrum charges. It’s a relatively tiny but a very welcome concession. Although the BABU-JAAL is starkly visible here too.

BABU-JAAL: Attaching Spectrum Liability to Dollar Exchange Rate
There is no attempt to correct the definition of Adjusted Gross Revenue, which in my humble opinion, and with great deference to the Hon’ble Supreme Court, that definition is utterly flawed.

Imagine, you pay spectrum charges on foreign exchange gains and losses! As the dollar moves up and down against the rupee the spectrum or licensing liability also yo-yos with it.

This is all wrong – arithmetically, economically, and commercially. 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. They are dramatic, they are strong but you need to protect them against the BABU-JAAL.