Even today, despite 22 years of liberalisation, the government tends to treat PSUs like arms of the government. So, when PSU telcos MTNL and BSNL ran into difficulties, the government had no hesitation in taking back their spectrum and refunding their money, something that would never have been done for a private firm. In the case of Air India which, like BSNL and MTNL, is no longer the preferred provider of choice for the bulk of the target population, even the CAG felt it was par for the course to reserve bilaterals for the airline. Which is why Prime Minister Manmohan Singh did well to highlight this obvious problem in his BRICS competition conference speech yesterday. Competitive neutrality, the PM said, requires that the government not use its legislative and fiscal powers to give undue advantage to its own businesses over the private sector.
Talking about something and doing it, of course, are two different things. The government has an ongoing bailout programme for Air India which, as this paper has argued in the past, distorts the level-playing field. Unlike a private entrepreneur who finds it difficult to infuse capital into a sick business, the government has virtually unlimited funds which, to come to the PM’s other point, also shelters the firm from competition. In the case of telecom, with both BSNL and MTNL used to government funding, this allowed them to price their product more aggressively than the competition but, despite this, consumers made their choice quite clear.
Apart from Air India, the other area where the PM needs to deliver on is insulating PSUs from bureaucracy and giving them freedom to function, to move away from the chokehold that mechanical adherence to L1 tendering places on PSUs. In the oil sector, one of the principal reasons for ONGC not being able to find a suitable partner for the deep waters is the rigid framework which the oil PSU has to function within.