Wednesday, August 01, 2007

How Sarkari "enterprises" destroy value

Air India has bought 2 Boeing 777s that can fly direct to New York.
But the inaugural flight has gone empty.
Even as Union Civil Aviation Minister Praful Patel flagged off Air India’s inaugural non-stop flight to New York amid much fanfare early on Wednesday, the flag carrier’s top brass mulled over the near-empty Boeing 777-200LR that pushed back from Mumbai’s Chhatrapati Shivaji International Airport at 12:45 am.
For onboard the “historic” flight were a meagre 80-odd passengers—including a dozen freeloaders [emphasis added] —as against the 238 seats available. Or a paltry 33 per cent load. What’s worse: things don’t appear much better for the first fortnight either.
In an era of free(er) skies, will anyone really fly Air India? I had the misfortune of flying them once and was appalled, really appalled at the planes and the (total lack of) service.

Despite this,
Air India had opened bookings with fares over 30 per cent higher than the industry average on the sector, which were later brought at par, because of slow bookings.
So, not only does the airline offer pathetic services, it also charges more than its competitors! That's rich!!

Inquiring taxpayers (like myself) want to know where the money goes, and why the all-knowing Government of India continues to squander my taxes on funding this -- and other -- white elephants.

17 comments:

Ashutosh said...

Your example are totally onse sided and biased. When a succesful private airline opened its FIRST Banglore-Mumbail flight; it carried only one passanger. Now for the very pathetic critiques:
(i) I have been flying Air India for last 8 years (Europe and Americas) and I have noticed that their flights are always full. (ii) Their service sometimes is bad (not worse) (iii) However They almost always have the best deal.

Now I am also proud of great service Air India has done which cannot be measured in terms of any money. Unlike Haliburton it has done great at times of Kuwait crisis and various other crisis.
Instead of generally critisizing any institution why don't you take some efforts to find out the exact problem. Before randomely shootingb from the pocket I solicite your valuable opinion on following two facts: (i) There was a great "Erudite" Rakesh Mohan comitte report on Indian Railways (IR) which said that IR will be making thousands of crores of losses and there is no way anyone can salvage IR. and suggested privatization/breaking up.(ii) Rakesh Mohan is well respected career public servant /economist.
(iii) After Laluprasad Yadav took over railways it bacame profitable. (iv) For almost 3/4 years; I did not pass a single day without receiving an e mail criticizing Laluprasad Yadav, his Bihar and how he is going to take India to dogs.Surprisingly it has stopped now.

AGworld said...

Incorrect.

Air India is very much representative of most Sarkari enterprises.

Sector after sector, the story is the same: government enterprises destroy value.

If you take transport:Air India, Indian Airlines, Premier Padmini, Ambassador, Shipping Corporation of india -- all of them, destroy value.

If you take infrastructure: Food Corporation of India, Steel mills, electricity companies (gencos, transcos and discos), water boards, all of them destroy value.

Take Oil: The so-called indian oil companies generate notional value principally because they collect rent (no one was allowed to compete with them).
But they destroy value by not doing R&D, exploration and so on.
Why did Reliance discover more oil in one single KG basin than ONGC and all others did in 40 years?

And i wont even start with telecom and how VSNL and co. fleeced me with Rs 80 per min calls to america 20 years ago, when they can be made now at 16 Rs.

The reason all these entities destroy value is simple: it is not the government's business to be in business. Some babu sitting in a mantralay cannot, no matter how smart he is, know more than the market.

Second, the government is simply not structured to deliver these services -- it does not have the incentives or the managerial bandwidth to solve for these issues.
What these entities ARE used for is as vehicles of political patronage.
To distribute free power or give free tickets or what not.
Which is not fine, because my tax rupees are being wasted (I live in india, by the way) financing some non performing companies. Tax dollars that are better spent on providing security, healthcare and education.

It is the railways, in fact, that represent a "biased" case example.

One does not know how much of the Railways recent success accrues either to Laloo or his predecessors or simply to chance: india's trade has grown so rapidly (while her roads have not) that the railways may be making more money simply because no other substitute for transporting goods exists!


Suggest YOU do some homework before foisting your tired and dull socialist ideas onto the author.

Ashutosh said...

You just keep on focussing on your biased views and opinions without facts and solutions. I am sticking to facts: You did not counter anything about Air India. When I gave Railways example you attribute it to coincidance. Now with your only factual VSNL example; any open person would also understand the pricing in telecom sector. Another fact is that in 1998 I was paying 56 cents/minute for a call to India from USA(MCI). Currently I pay 12 cents. Does that mean that they "fleeced" me. Should I start jumping in my seat?
I have worked in a premier Industrial loans company for many years and had opportunity to closely observe both Indian corporate sector and IAS offficers all over India. Yes there is a problem with Public Sector but the solution is not jumping the guns and hand over everything to private sector without strong laws and their proper implementation. What we need is accountable government servant and clear and open laws which cannot be bent. My fear is Indian corporate sector has also many times bent the laws. In China few people were sentenced to death for taking bribes. That is why despite a strong communist government it is making strides. I will give you just another example. In electricity sector in my childhood in Mumbai the power was distributed by BSES and we had very few any complaint. Soon after BSES was taken over by Reliance Energy; I read every few days about protest over over billing and other problems. BTW talking about market economy what is you opinion about gobvernment forcebly taking over land from farmers to give it to companies like Infosys or Reliance. Aren't you subsidizing infosys stockholders at the cost of farmers. Where's the market economy when as a farmer my right to free commerce is abrogated.

AGworld said...

VSNL as the only example?
Did you not read the examples of our oil majors that did no exploration for 40 years, the state-owned electricity boards that did not add a single watt of capacity for 20 years leading to a massive 55,000 MW shortfall in maharashtra alone today? That have allowed T&D losses to climb to 40%?
I can give you stats on each of the companies, in each of the sectors i mentioned -- and they all read like air india.

Clearly you do not read before you pass judgements.

The root issue here is the government ran all these entities as a monopoly, systematically destroying value. The solution is, more often than not, a free market.
The point with Air India is this -- the airline free market has demonstrated that the private sector can provide better airlines at lower cost, and yet, the government wastes tax monies to fund the likes of air india, destroying value.

As for Air India's service -- i have experienced it on several sectors and have been appalled, again and again. So i guess it is your word against mine.
Clearly a lot more people agree with me, otherwise Air India's market share would have risen and not fallen.

The real reason we continue to have bad governance is because a lot of people -- like you -- keep insisting on letting the government do things, when, in reality, the market can do it better.

Of course, people like you then go and live in the US -- a free-market, and avoid having to face the consequences of harebrained socialistic policies.

Nandigram, in fact, instead of underscoring why private enterprise is bad -- underscores the grave folly of handing over everything to the government. All someone has to do is to bribe some all powerful buddhadeb -- who can then ask dissenters to be shot.

Better to have a market, where the land can be bought by the ambanis and the infosys's at market rates.

Ashutosh said...

Here are my answers for your statements:Did you not read the examples of our oil majors that did no exploration for 40 years:
FACTUALLY INCORRECT. DO YOU MEAN BOMBAY HIGH AND MANY OTHER OIL FIELDS WERE FLUKE? I AGREE THEY DID NOT HAVE ENOUGH RESOURCES TO EXPLORE ALL THE FIELDS. THAT IS WHY PRIVATE SECTOR WAS CALLED IN.

, the state-owned electricity boards that did not add a single watt of capacity for 20 years leading to a massive 55,000 MW shortfall in maharashtra alone today? :
AGAIN FACTUALLY INCORRECT. THEY ADDED A LOT OF CAPACITY BUT CAPITAL CRUNCH PREVENTED THEM FROM ADDING MORE CAPACITY.
That have allowed T&D losses to climb to 40%?
TWO MAIN REASONS FOR HIGH T&D LOSSES(THEY WERE AROUND 23% AS I LAST REMEMBERED) WERE:(a)THEFTS(b) INADEQUATE INVESTMENTS IN INFRASTRUCTURE. FOR BOTH SEB'S ARE NOT DIRECTLY RESPONSIBLE.

I can give you stats on each of the companies, in each of the sectors i mentioned -- and they all read like air india.
AS A PART OF MY MBA I STUDIED SICK INDUSTRIAL UNDERTAKINGS IN INDIA IN EARLY 90s; CONTRARY TO MY (MBA INFLUENCED) EXPECTATIONS MORE THAN 40% WERE SICK BECAUSE OF MANAGEMENT. HARDLY 2% WERE SICK BECAUSE OF LABOUR.THERE ARE TONNES OF PRIVATE SECTOR COMPANIES LYING SICK AROUND (DESTROYING VALUES);

Clearly you do not read before you pass judgements.

NO COMMENTS

The root issue here is the government ran all these entities as a monopoly, systematically destroying value. The solution is, more often than not, a free market.
The point with Air India is this -- the airline free market has demonstrated that the private sector can provide better airlines at lower cost, and yet, the government wastes tax monies to fund the likes of air india, destroying value.

As for Air India's service -- i have experienced it on several sectors and have been appalled, again and again. So i guess it is your word against mine.

I DO NOT UNDERSTAND ONE FACT.IN LOSE TALKS MANY NDIANS ALWAYS TALK ABOUT AIR INDIA'S DISMAL SERVICE; BUT YEAR AFTER YEAR; WHEN I ASK THE SAME PERSONS WHICH AIRLINE THEY TRAVELLED LAST; THE ANSWWER IS "AIR INDIA". THIS IS FREE MARKET , YOU HAVE CHOICE. AFTER SO MUCH CRITICISM WHY YOU CHOSE AIR INDIA. PLS BE HONEST THERE MUST BE SOMETHING. YOU HAVE TRAVELLED ON AIR INDIA MANY TIMES WHY DO YOU DO THAT AGAIN AND AGAIN.WHY DIDN'T YOU CHOSE ANY OTHER AIRLINE AFTER YOUR FIRST "APALLED" SERVICE. BE HONEST NOW DO'T TELL ME THERE IS NO CHOICE. EVERY COUNTRY WHEN IT GIVE RIGHTS OF AIRWAYS IT RECEIVES RIGHT OF AIRWAYS SO AIR INDIA WAS NOT THE ONLY CHOICE; ESPECIALLY IN INTERNATIONAL SECTOR IT IS OPERATING.
Clearly a lot more people agree with me, otherwise Air India's market share would have risen and not fallen.

The real reason we continue to have bad governance is because a lot of people -- like you -- keep insisting on letting the government do things, when, in reality, the market can do it better.
FACT: I HAVE ALWAYS FOUND ITS VERY DIFFICULT TO GET TICKETS ON AIR INDIA THAN ANY OTHER AIRLINE ON USA-INDIA ROUTE. WHY SO?

Of course, people like you then go and live in the US -- a free-market, and avoid having to face the consequences of harebrained socialistic policies.
IN ONE OF THE DISCUSSIONS A PERSON COMMENTED ON 3 QUALITIES OF INDIAN PEOPLE:(A) THEY TALK AND GENERALIZE A LOT (b) IF YOU CHALLNGE THEM WITH EAXACT POINTS THEY ATTACK PERSONALLY.

NOW LET ME REITERATE MY POINT AGAIN:
(A) YES I AGREE FAIR ETHICAL AND RULE BOUND FREE MARKET IS MUCH MORE EFFICIENT METHOD OF PROGRESS THAN GOVERNMENT OWNERSHIP.(B) HOWEVER EMPHASIZE THE WORDS FAIR ETHICAL AND RULE BOUND. BEFORE CRITICIZING GOVENMENT AND PUBLIC SECTOR LET US CREATE AND IMPLEMENT PROPER LAWS AND RULES THAT GOVERN COMMERCE; AND THEN LET US HAND OVER TO PRIVATE SECTOR.

TODAY THE COMMON MAN ATLEAST CAN KEEP A CONTROL ON BAD ELEMENTS IN COMMERCE THROUGH GOVERNMENT.
I CAN GUARANTEE YOU ONE FACT:MANY COMPANIES IN INDIA "OPERATING IN FREE MARKETS" WILL BE TAKEN TO TASK HERE IN USA. WERE NOT I-FLEX'S SENIOR EXECUTIVES WERE TAKEN TO TASK IN EUROPE FOR BENDING RULES.(WERE THEY NOT OPERATING IN COMPLETE FREE MARKET? WHY DID THEY DO THAT BUDDY?"

NOW LET ME AGAIN POINT OUT ANOTHER THING. A FEW YEARS BACK THERE WAS SOME KIND OF DIESESE ON CHICKENS IN MAHARASHTRA AND CHICKEN PRICES BOTOMMED OUT. I HEARD THAT MANY TRADERS BOUGHT THOSE DIESESED CHICKENS AT ROCK BOTTOM PRICES , HID THEM AWAY FOR A FEW MONTHS AND THEN SOLD THEM AT CONSIDERABLE PROFITS. COMPARE IT AGAINST HONEST AND FREQUENT RECALLS OF THEIR PRODUSCTS AT CONSIDERABLE LOSS BY MANY US COMPANIES.

AGAIN BEFORE WE ALLOW FREE FIELD FOR PRIVATE SECTOR LET US MAKE THE RULES BY WHICH THE PLAYERS SHOULD PLAY AND THEN HAND IT OVER TO PRIVATE SECTOR.
Nandigram, in fact, instead of underscoring why private enterprise is bad -- underscores the grave folly of handing over everything to the government. All someone has to do is to bribe some all powerful buddhadeb -- who can then ask dissenters to be shot.

Better to have a market, where the land can be bought by the ambanis and the infosys's at market rates.
THANKS FOR BEING AGAINST GOVERNMENT INFLICTED SUBSIDIZATION OF CORPORATE STOCKHOLDERS FROM FARMERS POCKETS

AGworld said...

I can tear apart each and every of your arguments.
Facile ones like "they did not have enough resources" or"I cannot find air india tickets" are easiest to destroy (simple: these monopolistic SEBs wasted monies despite charging people a lot of money and look at AIs market share).

Others like "companies in the US are honest but those in india are crooks" is also easy but will require a bit of writing.

But i wont enter into a point by point rebuttal.
Its a waste of time reasoning with someone shouting at the top of his lungs (you remind me of rage boy with your sanctimonious ALL CAPS).

This thread is now closed.

Ashutosh said...
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Ashutosh said...
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Ashutosh said...
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Ashutosh said...
This comment has been removed by a blog administrator.
AGworld said...

Ashutosh

Deleting your posts is not about the content at all -- you have made some interesting points that were worth debating. Your perspectives on allowing FDI in retail, on the balance between private sector and government, for instance.

Nor was it about the faux pas in "how many times i have travelled on AI" (for the record, i have done an extensive round trip with them across 3-4 sectors -- my "one" trip; many members in my family have also flown AI, which is where i drew inferences from as well).

What it comes down to, finally, is ownership.This is MY blog -- where i decide what goes on. It is not a public BBS or a commons.

So i expect you to respect rules in my space (which includes, by the way, NOT SHOUTING).

Net-net: You're always welcome to come by, read, drop notes, challenge notions -- but do respect house rules!

Ashutosh said...

Cool Agworld; after many comments I read nice good language unlike the one you use to criticize public sector, sarkari and socialist,zholawalas etc.Can you please tell me which "house rule " I have broken ? My language has been pretty decent; I always talked about facts and never attacked you personally. neither I did attribute to you anything which you did not state. The only rule I may have broken is that when answring your comments point by point, as I was including your comments (to differentiate my writings from your comments)I used capital script.I feel a minor offense; I apologize if you found it too offensive and it did heart your feeling.
Offcourse I felt you are using this media to raise interesting points and understand others views on them to proceed further; not just to fan public opinions and you would be open to people with differing views. That is why I feel you should have allowd those "inconvinient" comments to remain there for readers to form their own judgement. Let me know

AGworld said...

Thanks -- hope to see you around.

Alas, my distaste for socialism and over-government continues.

Air india is a symptom of that (mislplaced sense of) omnipotence.

Running an airline is something the market can do -- more efficiently, more profitably than any government.

Better the GoI focus on doing things only it can do.

It is my firm belief that if the government focuses on some things -- and some things only -- its resources will not be too thinly spread (as you noted).

But more on that in my next post -- watch this space!!

Ashutosh said...

I appreciate your destate for socialism etc. What I hate is the neo-capitalist; their " holier than" attitude and their selective application of open market theories only when suitable to them. I remember in mid nineties "Free market " was key word and each newspaper was everyday praising free economy. However as soon as governmenr tried to open publishing sector , they started opposing it tooth and nail. Here again your own example. Will your next blog be about denying Indian consumers benefits of purely free competition in Retail sector? or you don't find it important enough..........just because..........
Public sector/GOI are our institutions anybody can kick them at his own sweet will..........

AGworld said...

I take your point on free markets -- you should read Raghuraman Rajan's "Saving Capitalism from the capitalists."
But the premise there too is about free markets being controlled and being, well, less free. Which is obviously to be opposed.
Just as government hegemony over services -- be they airlines -- is to be opposed. Allowing the likes of jet, kingfisher is a step in the right direction.

I note your ongoing obsession with free market in retail -- for some reason you believe that i will oppose it.

I think free market in retail needs to have happened yesterday.

It has huge benefits for the entire supply chain -- from producer to consumer.
In fact, i'd go one further -- put in place a free market for grocery and retail and any opposition the common man may have for markets will evaporate. Imagine potatoes for 50% less, always -- and always available.

Perhaps that is why the government is NOT freeing retail -- when MR. Samanya aadmi sees his potatoes become 50% cheaper -- and always available -- at walmart he is likely to ask uncomfortable questions of the government -- questions like "hey.. can i have a free market in electricity? airlines? These guys seem to be doing a better job than you sarkari babus!"

What will the government then lord over?

I also note the jab about free markets in the press and your attempt to link it with my control over your notes on this blog.

Well, you're always free to start your own blog (its a free market).
My Blog, however, is my space -- and not a commons (something i have explained previously).

Keep visiting! I should have something by 15th August.

Ashutosh said...

Believe in me. The example of free market in publishing industry had no connection with your selectively deleting my comments. It was a live example in India in mid nineties when I always found everyone would talk about liberating other sector/industry but when talking about his own industry; would try to get maximum protection.
As for deleting comments posted by me; I have got nothing from you which "House Rules" I have broken. (the reason you gave for deleting my comments). Please refer to my comment (number 12 published at 3.45 am). I assure you that I will never break any of them again. As far your comments on "My House"; aren't you confortable with comments which in a very good language points out to fallacy in facts used by you to substantiate your argument and raises inconvinient questions. I thought that is what a progressive mind is all about. Even if they are uninteresting/useless (which as per your own admission they are not) readers will not incorporate them in forming their own views.

Ashutosh said...

I accept your invitation in comment 11 and would surely read comment, present mistakes, correct facts and present different views etc. However I am getting a red signal here. I urge you not to unilaterally delete my comments just because they are factually correct but inconvinient/embarrasing to you. Again except for using capital letters to differentiate my writing from your writing; I have not broken any well established principles and in fact constructively added to the ideas.(which you yourself has admitted); You never told me any reasons for deleting them such (foul language? indecent comment?,harsh personal attack?). Just a vague mention of "House Rules". but no specific mention of anything. There is no point is writing if it does not serve any purpose and it is deleted just based on ownership basis. Actually I was quite surprised.......I thought such a well read person; a person so fearless; so bold ;in his criticism of Indian Government and public sector ; would surely tolerate some corrective and constructive criticism himself. Or atleast would courageously allow with open mind , display of both sides of story to allow readers to form their own opinions.Let me know.........buddy