BSNL, MTNL Need To Be Downsized To Prevent Further Drain On Taxpayer Resources

It was with great reluctance that the Narendra Modi government abandoned its belief that poor performing public sector undertakings can be turned around merely by putting in the right people on top and sending the corrupt packing. First evidence of the loss of faith came with the government’s decision to privatise Air India and a few more loss-making companies last year.

But faith obviously dies hard. Nothing illustrates it more than the government’s proposal to spend a massive Rs 73,787 crore to revive Bharat Sanchar Nigam Limited (BSNL), and its sicklier twin, Mahanagar Telephone Nigam Limited (MTNL). These are two of the whitest of white pachyderms in the government’s stable, but Telecom Minister Ravi Shankar Prasad assured Parliament the other day that he will make a “focused attempt” for “the revival of BSNL and MTNL.”

To be sure, no matter what the government does with BSNL and MTNL, it will eat massively into taxpayer funds. Even if a bold decision is taken to shut or downsize them drastically, it will cost tonnes of money. If the government plans to make them more “efficient”, that will cost even more money.

Consider their finances. BSNL’s finances are such as to make Air India look like the epitome of efficiency. For the last three years, BSNL’s total revenues (yes, revenues, not profits) have been falling continuously, from Rs 31,533 crore in 2016-17 to Rs 25,071 crore the following year and finally to Rs 19,308 crore last year.

Losses in 2018-19 are expected to balloon to over Rs 14,000 crore, which, interestingly is almost the same as its employee cost of Rs 14,488 crore. Employees eat up 75 per cent of gross revenues. Between them, BSNL and MTNL had 184,000-plus employees.

Clearly, the two companies are being run more to keep employees in cushy jobs than to serve customers. Which is why the planned rescue package is a massive Rs 73,787 crore. According to a Times of India report, Rs 40,000 crore of that will go towards financing a golden handshake for employees, and the rest towards payment for 4G spectrum fees and rollout of services.

Put another way, all this money will be paid out merely to bring BSNL and MTNL upto where their private sector competitors are in terms of 4G products and services, and to bring down staffing expenses. It’s about catch-up, not about making them competitive.

To be fair, given Reliance Jio’s tariff onslaught, even BSNL’s private sector rivals, Airtel and Vodafone Idea, had to raise Rs 25,000 crore each of equity to stay afloat and roll out 4G services nationally. But they have no employee baggage to carry, nor any legacy issues on work culture. BSNL and MTNL have all the afflictions of public sector enterprises in general.

More than Air India, the Modi government should worry about BSNL and MTNL, which have the potential to drain the exchequer endlessly. And the Rs 73,787 crore bailout will not be the last of the major investments needed. Example: the government is thinking of rolling out 5G services, and neither of its two white elephants can afford to stay out. Under the current arrangement, BSNL and MTNL get spectrum allotted to them after the pricing is decided by private sector bidders in auctions. So, after the current bailout, several thousand crores more will be needed to pay for 5G spectrum.

The only logical way out is for the government to use its bailout money to downsize both telecom companies, and focus its spends purely on extending telecom to areas that the private sector will not service, or where national security priorities dictate (border areas, etc). It is possible to subsidise inclusion and national security, but not expansion to areas where private sector companies can easily meet demand.

By keeping BSNL and MTNL on permanent life support, the government is not doing itself any favour. The more loss-makers like these exists, the harder it is for even private players to raise tariffs and turn a profit. Just as Air India’s fight for market share makes it tougher for other airlines to raise fares, BSNL will keep the industry permanently in financial trouble by fighting to retain its 10-per cent-plus-market-share. On the other hand, if BSNL and MTNL are downsized to serve only the needy, not only will the subsidies be lower, but the rest of the industry will become more profitable and generate tax revenues for government.

In the long run, keeping BSNL in the public sector may not be needed even to serve far-flung areas, since these can anyway be served by a more efficient private sector through a subsidy programme that anyone can bid for. Those seeking the lowest subsidy to serve difficult areas can be allotted these territories.

It is difficult to see BSNL and MTNL serving any national purpose beyond the next few years. So why not bite the bullet right now and save the taxpayer the trouble of carrying the burden endlessly?