The ideal solution, of course, is to abolish licensing altogether as an entry barrier and let in all comers. But this may not work very well in industries which have been a total government monopoly. The capital invested there by the government needs a greater degree of protection for a longer period and that alone would clinch the issue in favour of licensing. The domestic aviation industry is a good example of this. The government has retained licensing there mainly in order to protect Indian Airlines. The attempt has succeeded inasmuch as IA's market share has stabilised as its performance has improved.
If the need for retaining licensing even temporarily is conceded, who should administer the system? The Sukh Ram episode provides a clear answer: anyone but the minister, preferably an independent regulator answerable to Parliament rather than the minister (as indeed the Telecom Commission is). But even an independent regulatory authority could botch it up if not necessarily through corruption, but by designing wrong policies. Though it is early days yet, the pronouncements emanating from the Insurance Regulatory Authority give a hint of this. Whence the importance of not just putting the right man in the right job and of getting the system right but also of getting the principles of privatisation right. And these should be three: complete transparency of rules, which means no covert entry barriers; no discretionary powers which can be used to change playing conditions arbitrarily; and a clearly announced competition policy. It was because the Rao government failed to do any of these things prior to starting the process of telecom privatisation that crony capitalism began to flourish. The United Front government should avoid falling into the same traps
