PSUs losing efficiency battle

Public sector companies and some government departments have come in for severe criticism in the India Infrastructure Report 2003. The report says inefficiencies of PSUs have provided private firms with a huge pricing advantage.

The report has been jointly prepared by Infrastructure Development Finance Company (IDFC), Indian Institute of Technology (Kanpur) and Indian Institute of Management (Ahmedabad).

Citing the example of the telecom sector, the report said the department of telecom had tried to influence Telecom Regulatory Authority of India (Trai) to make the environment conducive for its PSUs instead of encouraging them to act according to market needs.

It also criticised Trai for putting in place the access deficit charge, which had negated the benefits of unified licensing. The report said the Universal Service Obligation was a better mechanism than ADC.

It said PSUs like Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd had not been quick to respond to private competitors "" particularly in the broadband and value-added services categories.

"The department of telecommunications has tried to influence the regulator and stall reforms. In any case, from the point of view of consumers, now the developments are not of great interest since network expansion is assured to those who can afford. For the private sector operators, who were not able to ramp up, all they could hope for was to get a good price to be taken over," the report said.

Citing the example of Jet Airways, the report said with greater reliance on internal revenue generation, the company was today larger than Indian Airlines and willing to offer fare cuts on routes with higher price elasticity.

The private carrier has also exposed the hollowness of Indian Railways. In the case of postal services too, private courier and parcel service providers are offering services at half the rates charged by the department of posts.

The report said private enterprises resorted to price cuts after they cornered a significant marketshare and drove the growth in the sector.

"In some cases, the old state-owned enterprise had itself been forced to respond in kind to create value for consumers," it added.