 Hello and welcome to NewsClick. Today we are going to discuss the state of the India's infrastructure, particularly the companies who seem to be sinking deeper into the red and its impact on the non-performing assets of the banks. For what we see, we seem to be now approaching another crisis of the non-performance assets of the banks, essentially the telecom sector which owes anything between 2 to 3 lakh crore rupees to the banks is also approaching a state of crisis? Absolutely because ultimately I guess when you try to artificially generate, create some sort of a demand either by giving excessive credit to consumers or you provide too much supply which we have seen happening both in power and probably telecom because once you hit the missed call club, people who don't make calls but expect you to make that call and they just keep a cell phone for you know at the lowest possible average revenue per user then telecoms in a crisis and once GEO has come in, if there is no earning, no revenue they are not going to be able to pay back the loans that they have and that's the problem we are facing. The telecom companies have been talking about what is called the predatory pricing, the fact that you have switched completely to a data model essentially and you are also subsidizing that probably from other revenues that reliance had which is the oil revenue which was essentially going to provide the initial push to GEO and the argument of the telecom company has been this is a predatory pricing model it wants us to sink and therefore have only GEO as a player and as we know even with BSNL and Mahanagar Nigam MTNL we are seeing the same phenomena. But the telecom companies if one looks at Airtel and Vodafone or Ida the people who came in first they did the same thing it's not as if that you know they got these largest from the government of India and you are one of the people I remember when I was a relatively young reporter I recall interviewing you in those days in the 99 you know that late period when that new telecom policy and all those things were coming. The whole issue was coming in from what they had quoted as the license fees that shifted to a revenue share. So they got this huge largest and they had these so-called sunrise industries nice tax holidays so they could give very cheap talk time to people people switched to that what is that you killed MTNL and BSNL doing that now someone else has come and done that to you it was bound to happen. Well you know the issue about predatory pricing is who does it to whom so accepting that and the issue for MTNL BSNL was even bigger because they were not given mobile licenses initially. In fact they came in much later and then when they did do well relatively well their revenue was again taken away under various strategies under the 2G scam being one of them when they are supposed to give infrastructure free to other new entrants. So right from the beginning and this is one of this ties into the idea of NPA right from the beginning we've seen two things happen one is that companies in India infrastructure companies specially have raised money from the capital markets and even there the equity has probably been 20% 80% has been funded mostly by state bank of India and government bank the public sector which is and often probably the chairman or some senior person got a call and said that this guy should be given the loan. In fact the core sector lending went to the private sector as a relaxation of the policies of the government. Exactly this is where it starts from. Now the point is that on the face of it it looked like wow look at these massive airports being built look at these bridges the private sector is booming and Indians are going and buying steel companies outside car companies outside India is now a superpower and people were consuming because they were getting personal loans. Someday this was bound to collapse. So leaving out the consumer boom part of it let's look at the infrastructure what you are saying is the infrastructure boom that we saw telecom big one of them of course power sector did see a boom in terms of generating companies because that's also the licensed virtually and this was really fueled by the public sector banks. Essentially out of your and my money people's money and this is where today the bubble is bursting is that what you're saying? I'm saying the reason I brought in that consumption thing is because the story was sold that India has 1.3 billion people and maybe at that time less but the one point and this is going to keep increasing they're only going to consume you're giving some people virtually stuff for free right they were consuming everyone consumes if you give it to a free and that was being sold to raise funds so I'm not saying that it was all corruption but many public sector bank chairmen if you speak to them they said we believe there'll be growth we were told they'll be growth there will be you know I would even argue that there was a growth and because the you gave mafie to the what is called the license fees and converted to revenue sharing and revenue sharing was a drop from 6% to 2% and so on that there was a genuine growth at that point of time but it was really bankrolled by ours and your savings. Now if you take that away and consider that this is really funded by the public sector banks then essentially this is in no way different from what would have happened if they had actually also funded the the BSNN from essentially bank low I mean one of the things that people tell you all the time is that private sector is much more efficient they're efficient at selling things to you and once you bought it after that I don't know and borrowing from the banks and not paying back the low yes all these things are they're very much more and if you compare salaries one should compare what public sector person gets and what a private sector and then see whether they'll have the same amount of efficiency but the ultimately the basic point here remains that this has been a bubble created by credit so when we look at and that's a point also to be made you know the Congress party nowadays argues look at how much there was investment high investment I think close to 30% of GDP was being was the investment rate and now it's dropped to less than 20% or something like that well that investment was because you were calling people and saying here take this money and invested and there were no takers for what they were producing so when one talks about power sector let's say there's been massive generation and at one point the government of India was saying we are now power surplus country what does that even mean when most people probably put on one bulb so that brings us to the second part of it is that consumption if it does not increase of the people yeah then these bubbles at a certain point will really burst absolutely but what you're seeing here is on one side that this bubble is being pushed by saying we'll give more latitude to the big capital more tax relief more loans make things easier for them to take loans but if ultimately the economy does not expand in terms of the buying power of the people what you're saying is that's where the block is what all all that it has done is essentially created these huge valuations in the stock market till 2008 some of these biggest infrastructure companies which were being valued on the basis of what they were going to build right the replacement cost as they'd say or what they're building or what they will own all the power companies where are they today they've collapsed their market cap has dropped dramatically because they have no takers for what they produce if one looks at power so if you are going to say that Indians can buy power at 15 rupees per unit that is ridiculous absolutely right so you're forcing straight electricity boards to make these private companies viable by buying power from them at things which are profitable for them and then selling it to people at a loss taking it alone so it is essentially socializing profits and privatizing loss sorry so privatizing profits and socializing losses that's what you're doing it ultimately we'll have to pay for it if you really look at it look at that what was the original model was infrastructure will be built by the state absolutely because these are long gestation projects they create multiplies the rest of the economy and therefore they drive the economy but because they take a long time to bear fruit in terms of returns therefore they should be bought by the state now what we have done is we have really followed the same model in terms of the money that has been put into them that's come from public coffers and now owned indirectly it doesn't it doesn't appear yeah I mean if you ask someone so that why should so-and-so why should this company have the right so they'll say because they have the money but they don't have the money 80% of it is actually public funds picked up from public sector banks they are 20% of the money that 20% as my former colleague Srinivasan Jain was told by a very senior corporate that you know the point is that you have to show 20% equity so we inflate the total cost we inflate the cost from 100 to 120 and therefore the bank gives us 96 80% of 120 so we have to actually put out only 4% and this is what is called give me 96% I'll become a capitalist I'm sure over invoicing over invoicing under invoicing yeah that's what's called the end-run model by the way you know that's what end-run but leaving all of that out we are hitting right now the end of this road for what would we call private financing of infrastructure which you as you rightly said was really public financing by another name yes and if we see all the infrastructure sector from the housing roads irrigation projects whatever you talk about yeah hydroelectric power thermal power yeah renewables again going the same way and now we see telecom as well entering that all of it would show that the sector crisis of the Indian economy really stems at the moment from infrastructure exactly it actually stems as you said that it stems from the fact that the government directly doesn't want to spend because somehow it fears that it will show up as debt on its books as fiscal deficit so let the public sectors which it owns public sector banks give the loans and have these assets so-called assets because on the banks books alone is an asset and no one's going to return that so again I'll give an example of one of India's top corporates of the 80s and 90s one journalist who was close to him asked him that what do you think happens when interest rates does it help you so he said that you're paying so that's their attitude that's their attitude you know Malia's assets in the airlines yeah was two and a half aircraft they had a number of aircrafts flying but they're all on lease yes so effectively no capital asset whatsoever so the essential problem remains that here are these banks which have actually in I mean in technical terms probably not taken our money because every time they actually create a loan effectively some would argue they've created money right so they've essentially created a deposit on the side I'm saying as essentially citizens but I mean at the end of the day someone has to pay for that debt whether the government does it by recapitalizing banks by printing more money or through bonds or whatever they do it is private saving so every time the fiscal deficit increases this is public money because the state creating say deficits or creating printing money yeah both effectively is our money because we are the state so if the state had actually continued to own and run these even not run just own own these infrastructure projects as you said or power companies maybe we wouldn't have seen this bubble because ultimately it's a bubble you could say wow India grew so fast infrastructure grew so fast but who paid for it where is it is that a large part of the for instance the thermal power stations NTPC was building them they behaved almost like private sector but ran them much better exactly and actually ran them at a much higher levels of efficiency than anything these are matter of public record so and NTPC bought from BHEL also equipment from the Indian companies so boomed the Indian economy the productive assets also increased also production increased while buying the biggest help that the Indian private sector did was actually buying buying handsets from China buying buying power plants from China yeah say the people might have thought that Siemens and G would be beneficiaries no all the beneficiaries really Chinese companies so the manufacturing boom of because of the Indian private sector took place whatever it did took place in China while the peak companies which were buying in India which were public sector both in terms of buying as well in terms of selling BHEL and NTPC being the example both of that we actually broke because we went to private sector and we also forced NTPC to buy with global tenders buy from outside and of course we are turning BHEL into another one of those one of those things which we will later say oh public sector is lost so my my submission here is that if the state if this had remained in the state sector then growth would have been much more stable stable it would have been slower but it would have been planned people would have known okay this is the amount that we can do this is the money we have dreams have been sold I'm not saying everyone was that there's corruption all over there was corruption there's no doubt but at the same time banks have thought that oh I must lend because I will get so much back I will become this huge bank as I go on and public sector bank chairman thought I will become powerful maybe I'll become the RBI you know governor if I do well now these dreams were sold corporates lot of times siphoned off money took them away they were they ended up with things which they couldn't sell if one looks at power companies again they had built capacity they could generate state electricity boards weren't giving them power purchase agreements and without a puppet purchase agreement coal India wasn't going to give them coal it's as simple as that so I didn't know a little bit of that history yeah is a lot of the companies did not want power purchase agreements because they thought as merchant power they'd make more money yeah exactly yeah yeah I'm I'm privy to a lot of these contracts so we have seen that this is also what is a miscalculation but coming back to the other issue that the solution would be really looking at what other countries are doing including China which is really a healthy infrastructure come come very healthy healthy infrastructure companies which are continuously expanding of course with public funds yeah so that would be public ownership public ownership I mean you use public funds let the public own it yes absolutely so this would have been for us a safer route to go yeah rather than maybe slower but steadier and now we are facing this massive crisis where banks are saddled with NPAs they can't get out of it they take it's a nice term haircut right yeah you see a nice and benign term haircut haircuts ultimately what you and I take and we're really going bald at this way but last part of it is that this government does not seem to have any other ideas except repeating the same so we don't see anything different now they're talking about separating the wire from the electricity in terms of physics it's difficult I don't know how they'll do it economically but this is what is being talked about distribution companies do not know how to do distribution if we just remove the electricity from the wires then this will work okay so given all of it we don't seem to have do don't seem to have any new ideas either no because it requires a very radical change I mean just as there was a slow beginning from the early 80s of what we call liberalization and structural reforms and then it picked up and by 1991 91 is the kind of watershed off yeah when everything changes similarly you need a watershed moment now where you reverse some of what has gone on and no one's going to do that because all power today political power has actually coalesced in the hands of a few very large corporates in a certain sense they kind of are able to manage policy and the nitty gritty is a policy almost like licensed Raj well I think this is back to the license not licensed Raj but licensed Shastra yeah so we have the Adani's the Bani's who are on the crosshairs and various others beside who seem to be at the moment in the shall we say getting from airports to the new restructured telecom power all of it seems to be increasingly powerful and since no one else was being able to make money what the government did was it reduced corporate taxes now corporate taxes in terms of actual value maybe one and a half percent goes out but as a percentage of profit that one and a half percent is a lot so suddenly you have a gain of 10% in your profit compared to last year so everyone's happy again I have they reduced any prices have the biscuit prices which was supposed to go down if corporate tax have they gone down has consumption gone up have they given anything no so this is this government now decides to basically give soaps to corporate to India because it to the larger and there are some big business houses which get the actual benefits they control media so the entire messaging is also being controlled so that's that we are now in a space which you know is a what would be called a plutocracy I don't know if you're familiar with the city group report which was withdrawn of I think 2005 or something where this person had written things in the US is a plutocracy which is controlled there's no democracy here it is controlled by rich people 1% and we should only cater to this 1% so you should only buy things which are which are bought by these 1% India is actually that and in fact from 1% they're going to 0.1% yeah we are going from say what would have been earlier considered 20% 30% yeah to increasingly 1% that's a trajectory so if this NPA crisis has to be seriously solved and that serious solving requires government to enter solve it and maybe forget about these basal 2 norms and a basil 4 now norms which are which we are committed to follow but again do you do it through fiscal deficit which actually puts hands in the money of the rich it's their savings or do you do it by raising taxes of the rich right now frankly even the rich are not doing that well many of the rich are not doing that well as they were used to so I don't know what the solution is it is almost a stage of as you said a new ruby called has to be crossed absolutely and if that doesn't happen you're looking at continued crisis thank you very much on into for being with us discussing with us the rather boring and tedious issue about the fiscal deficit to the fiscal to the finances of the country and the companies I hope we've been passionate enough to make people think that this is important that it is not some remote thing happening but happening to the pockets thank you very much thank you for having this is all the time we have a news click today do keep watching news click and our other discussions