• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

G. Srinivasan

The Government often cries itself hoarse over the need to check non-merit subsidies from escalating. But, sadly, political compulsions of coalition governance, and not economics or welfare gains to the largest number of people, are increasingly driving vital decisions, says G. Srinivasan.

IN the last month of the first quarter of this fiscal, with the Union Budget for 2003-04 having got the imprimatur of Parliament early last month, the economic scenario presents none too bright a picture, with SARs (Severe Acute Respiratory Syndrome) and CAS (Conditional Access System) casting their shadow.

Though the Union Budget spared the middle class by not removing the plethora of prevailing tax savings exemptions, its overall impact in terms of pushing up growth impulses in the economy was also muted for reasons best known to the ruling dispensation of disparate constituents.

Consequently, the best reforms the Government seeks to push through get derailed, while issues of narrow focus serving a specific interest group emerge on top in the contest for competing claims.

Soon after the Budget, the urea price hike was rolled back, and the excise duty exemption revoked in the Budget was reinstated for the powerloom sector. The Union Communications Minister had to roll back the hike proposed for calls from the basic telephone service to cellular telephony.

Even the BJP President, Mr Venkaiah Naidu, contended that the forced rollback of some of the proposals of the Finance Minister and the Communications Minister was an achievement for the BJP.

"We have been successful in applying enough pressure to make sure that the telecom tariffs on basic telephone should not go up from the current levels. The powerloom sector got the desired concessions and for the sake of traders, we have jettisoned the implementation of the value-added tax... For the working class, we have ensured that interest rates for the provident fund and other benefits given to employees remain as it is despite a lower interest regime in general", so asserted Mr Naidu, extolling the people-friendly approach of the NDA government, with his eyes clearly focussed on the forthcoming Assembly elections in four major States that are to be followed by the General Election in 2004.

It is too much to expect anything more from a government suffering from "reform fatigue" for obvious electoral reasons. But when a well-meaning Finance Minister like Mr Jaswant Singh had to be a silent party to a collective decision favouring one segment or other in the economy, the Budget expectation that fiscal deficit would be contained at 5.6 per cent of the estimated GDP will, no doubt, be belied.

Mr Jaswant Singh's meticulously-researched and self-made Budget speech drawing attention to a "palpable impatience in the country for progress and growth with the nation unable to afford the luxury of prolonged periods of reflection or a leisurely implementation schedule" is far removed from the developments that followed the Budget.

When the additional Customs duty (cvd) on wine was rationalised to reduce duty on wines of c.i.f. value more than $40 per case of 9 litres from 50 per cent to 20 per cent, and cuts effected in excise duty from 32 per cent to 24 per cent on aerated soft drinks, polyester filament yarn, air-conditioners and motor cars, his proposals were said to be pandering to the elitist consumption spree.

And the Finance Ministry's announcement of a drastic cut in the Customs duty on the import of set-top boxes (STBs) betrays yet another priority of the BJP-led coalition Government — the demands from those who are organised and powerful, even if the cause is for entertainment.

The priority is also for the entertainment of a minuscule number of people in the four metropolises, who will have to access television pay channels under the Conditional Access System (CAS) since the cable operators have cartelised themselves by demanding periodic hikes in cable connection rates to the chagrin of consumers.

A little digression on CAS is needed here to understand its definition and wider ramification. Now, Cable TV subscribers receive both free-to-air (FTA) and pay channels at rates determined by the cable operator. Rates differ from city to city and even in areas within a city. The broadcasters have grouped their channels into bouquets and the subscriber is compelled to shell out, even for channels he does not want to view.

The CTV industry has a peculiar blend of actors involving broadcasters, content producers, advertisers, multi-system operators (MSOs), local cable operators or last mile operators (LMOs), the government and, finally, the subscribers.

Till recently, the MSOs and LMOs were blaming the broadcasters for increasing the prices of their pay channel bouquets, which led to the forced revision in subscription rates. The broadcasters accused the cable operators of under-reporting the number of subscribers, resulting in loss of earnings to the broadcasters and also evasion of entertainment tax, service tax and even income-tax.

In this evolving unsavoury scenario, where the consumers are at the mercy of a few players in the cable industry, the Government amended the Cable Television Act to make the viewing of pay channels through an addressable system (CAS) mandatory from July 15, 2003.

Among the merits of CAS, the Government said it would enable the consumer to receive only those channels which he or she wishes to view and pay only for those and not for the entire bouquet. Besides, CAS would impart transparency to the system, as precise figures of the subscriber base would be available and broadcasters would not make the under-reporting plea for periodic hikes in rates of pay channels.

The Government has further notified that a cable operator would have to provide at least 30 channels (including three must-carry channels of Doordarshan) of different genres, such as news, sports, entertainment and children's programmes. This would comprise the basic service tier of free-to-air channels.

The Government has also fixed Rs 72 as the cost for FTA channels to be paid to cable operators, excluding local taxes, every month. FTA channels above 30 would also be available at the same maximum price of Rs 72 plus local taxes.

If this is implementable, it is amazing that cable operators have been charging households in the Rs 250-360 range per month in the city.

As it is, cable operators and channel owners have a strong, sometimes overt nexus in the form of inter-corporate interests that is tantamount to indulging in restrictive trade practices.

No doubt, the recently approved amended Cable Television Act provides for certain safeguards, such as mandatory publication of subscription rates for each pay channel and periodic intervals at which subscriptions are payable in the manner prescribed by the Government; and violation of the Act is made a cognisable offence.

But considering that the cable operators have cartelised themselves with some of the channel owners backing them patently because of the latter's holdings in the former, would it be wrong to infer that the Government has put the cart before the horse by prematurely opting for a system that does not have enough teeth to implement the provisions?

As it is, the cable business players are limited in number and have entrenched themselves; thus, the role that a future regulator would have to play to inject competition into the system is not clear.

This has been clearly proven beyond the pale of doubt in the case of the cellular telephony sector, where a regulator like TRAI is watching haplessly as its decisions on commercial principles are overturned by the Government of the day to appease sectional interests.

The Competition Commission of India is yet to be put firmly in place to check restrictive trade practices, though the Competition Bill received the assent of the President on January 13, 2003.

So the whole issue of CAS and bringing discipline to cable operators and the subsequent duty reduction for import of STBs do not reveal any serious intentions on the part of the Government to prioritise its expenditure commitment to rein in the fiscal deficit.

It is one thing to announce overnight a steep reduction in import duty on a set-top box, and quite another to argue before the WTO that India needs Customs revenue for development purposes and that it could not drastically prune import duties.

Nobody would have dared to question the Government had it stuck with the old Customs duty on STBs because the constituency it is designed to serve in the four metros is less than one crore (with 6.7 million households) while the rest of India comprises 100 crore people.

The Government often cries itself hoarse over the need to check non-merit subsidies from escalating. But its action and sops, even by sacrificing a source of revenue that the affected section can well afford to shell out, and its all-too-quick response to vocal sections as and when they make a pitch reveals that good governance is but a pious proclamation.

Sadly, political compulsions of coalition governance dictate the decisions and not the economics or welfare gains to the maximum number of people over the long haul.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Missed opportunity

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line