Railways and profitability

Nine Ideas that will make Freight profitable

 

indian_railway2Preparation for Railway budget are in full swing and the officials are now closeted inside the Rail Mantralay. The most crucial thing for the Railway Minister is to bring back profitability and sustainability into the budget. Every year Railways has been borrowing money from the government to bridge its deficit, this can only stop if Railways improves its services on the freight front.

The real potential of the largest rail network in the world remain unrealized as freight is treated as a step sister by successive Ministers. Too much focus is there on the passenger fares while the real story lies in how Indian Railways can boost the economy of the country.

Freight services generate profits, which are diverted to subsidize passenger fares, leading to an overall loss in operations. Freight accounts for more than 70 per cent of revenues but does not get the attention it deserves. Development of freight services has been ignored over the years, and Railways has been losing market share to road transportation. Even though, road transportation is an in-efficient way of transporting bulk cargo and polluting. Higher dependence on road transportation also links logistics to the oil bill and raises the cost of doing business. Trucks add to pollution and general congestion in cities and highways. The trucking manufacturers lobby is a strong one, insisting on higher investment in highways. Investment in Highways needs to be balanced with investment in building the Railways freight infrastructure.

There are several reforms that need to be done to make freight services more efficient.

1. Railways charges freight on the basis of the shortest route to the destination not on miles or kilometers traveled. But congestion on major routes means that the shortest route is rarely taken, a fact pointed out by several CAG reports. Freight services and booking needs to be rationalized and every booking needs to be profitable. The profits on freight is divided a zonal and divisional level through apportioning of route traveled in the zone. This prevents a clear picture of profit on each booking nor does it give any incentive for zones to send the traffic through the shortest route. Freight traffic is the first one to be diverted in case of congestion.

2. One of the largest item, for freight is Iron ore and there are concessional scams galore, it has been a major area for losses for the Railways. South Eastern Railways has admitted to freight evasion of Rs 1875.63 crore in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This can ensure cash flow and check evasions.

3. There is poor capacity of both rolling stocks and locomotives for freight. Unlike passenger services where shortfalls are vocally demanded by parliamentarians, the need for increasing capacity is rarely raised as an issue. Procurement of locomotives is slow due to dependence on domestic manufacturing. Railways need to look at lease and maintenance models to augment capacity similar to private airlines that survive on leasing aircrafts.

4. Even for rolling stock or wagons supplies have been poor both from public and private enterprises. Here also new lease model that reduces the initial capital expenditure and spreads the payment over a period of time, this is important Railways has a cash crunch. Supplies from China need to be considered with Chinese banks funding the lease, a model perfected by several companies in oil exploration, and even telecom.

5. Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, a CAGR of 7.6 % during 12-17 according to Aranca Research. But expansion is not keeping pace with this demand as Railways does not have any surplus. Huge project like the Dedicated Freight Corridor (DFC) are stuck with land acquisitions and financing issues. Smaller projects some 800 odd ones are not getting the attention because of the obsession with DFC. DFC is a $16.7 bn project that was expected to be completed by 2017. But as per its balance sheet for 2012-13 the cumulative project execution of just Rs 2334.43 crore (approx.$400million) has been done. Spending time and efforts on DFC comes from a mindset of all or nothing. This has to change, incremental capacity is as important and smaller projects between ports and clusters need to be developed on a priority basis. One of the biggest bottleneck to power sector is delivery of coal and rail linkages from mines to power plant an area that has been neglected by Railways.

6. Railways has tried and tested PPP models the success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. But no progress has taken place on it since then due too may constraints, the policy needs to be revised.

7. Capacity expansion projects have to be taken up on war footing and should. PMO should directly monitor the progress and completion of these projects so that the Railway minister can ensure their completion. A status report in the budget on these projects will be a welcome beginning.

8. Commodity wise loading models needs to be adopted at major city based freight terminals so perishables can also consider railways as an alternative, The Prime Minister talked about it during his speeches and this is a low hanging measure that can be adopted immediately.

9. Freight Operation Information System (FOIS) is a huge help for bulk cargo transporters but limited to providing information. Can it be made as easy to navigate and book a rake on FOIS as it is to book a ticket for travel, that should be the goal.

(K Yatish Rajawat is a senior journalist. He is the founding Editor in Chief of Business Bhaskar (Hindi) and former Managing Editor of Dainik Bhaskar group. In a span of close to two decades he has worked with Economic Times, Businessworld and The Hindu Business Line newspapers.)

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New markets for farmers, can reduce prices

Spare APMC Act, here’s how the Centre can quickly lower food prices

By K Yatish Rajawat  
Spare APMC Act, here’s how the Centre can quickly lower food prices

The APMC Act doesn’t allow farmers to sell directly to consumers. Reuters image

The Finance Minister Arun Jaitley has called a meeting of the state chief ministers to work out means and mechanisms to control  prices in essential commodities. Traders have been creating  scare that prices of onion and potatoes will go up.

The meeting itself is a good pro-active step as a drought like situation is emerging in the country and more than perishables, hoarding of even grains is expected, driving prices up.  One of the proposals to be discussed at the meeting is to scrap the APMC Act. While the APMC Act is a problem, scrapping it does not solve the problem of price rise. The agenda  of the meeting also includes creating a ‘national market’  though what it means is unclear, as most perishables are consumed in a radius of 200 km to 500 km. Though onions can travel longer distances as they are not perishables. Inter-state movement will also be discussed. But the meeting tomorrow will only be fruitful if there are concrete proposals with the central government.

There are systemic issues at play here, prominent among them is the transparency of the commodity market.  The APMC Act does not help as it builds a supply chain that is further obfuscates the supply, demand and stock situation. Neither the government nor the farmer has any visibility of the price formation.  There is only one section in the APMC Act that is responsible for creating this distortion. This section has found a place even in the amended APMC Act, passed by several states. This section limits the sale by a farmer directly to consumers to 40 kgs in some states.

As a result the only location that a farmer can sell is the local mandi, where the prices are set by arthiyas who have been in the business for years. These traders/ arthiyas are also the traditional support base for BJP, especially in small towns and cities. They are a crucial cog in the BJP support base. Therefore, expecting a diktat like the one given by Ram Vilas Paswan, Union Minister of Consumer Affairs, Food & Public Distribution, that serious action will be taken against hoarders will not be pursued in BJP ruled states.

The state government will not or cannot move aggressively against hoarders and scrapping APMC is not the solution. Besides, the centre cannot scrap or amend the APMC as it is a state subject and needs legislative approval. This is not an immediate solution. The solution lies in an interesting Act passed by the  UPA- 2 government, which is The Street Vendors (Protection of livelihood and regulation of street vending) Act, 2014. This was one of the last Acts notified by the previous government in March 2014. Unfortunately, Congress never used this accomplishment during its campaigning, though it affects a wide range of population.

What the Street Vendors Act does is that it recognizes the street vendor as a businessman, and the same recognition needs to be given to farmers.  Once a farmer is recognized as a legitimate vendor and given the same right he will be allowed to bring his produce directly into the city, and sell it to consumer and the draconian part of the APMC Act will not apply. This will remove the middle layer and give the transparency to the producer about the prices. The farmer will also be able to judge and plant crops based on actual consumer prices. Hoarding will reduce as farmers will be selling directly.

New ways also need to be adopted by the state and city administration to help control prices. For instance, small cities can choose to allocate large parking lots in markets to farmer markets, on the days that the market is shut. In larger cities malls with multi-level parking can be asked to convert their parking into farmers market. Farmers’ market is an accepted model the world over, in which cities and government across the world give consumers access to farmers. Even large cities like New York and others have well established farmers’ market.

Technology can also play a role. A successful model in Hoshangbad district of Madhya Pradesh, gives farmers alerts about prices, stocks and supply expected on a daily basis. The model works on sending this information via a sms alert. It has worked well in preventing overflow of supply and helped farmers discover better prices. If the farmer knows that supply is low on a particular day in the mandi it will ensure better pricing for the farmer and harvesting on demand.

K Yatish Rajawat is the founder Editor in Chief of Business Bhaskar India’s first hindi language business newspaper, and the former Managing Editor of Dainik Bhaskar group, he tweets @yatishrajawat

 
 
 by K Yatish Rajawat 
 
 
http://firstbiz.firstpost.com/economy/spare-apmc-act-heres-how-the-centre-can-quickly-lower-food-prices-89638.html
 
 
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How Railways can help cut inflation

How railways can provide relief to the aam aadmi suffering from chronic price rise

By K Yatish Rajawat  
How railways can provide relief to the aam aadmi suffering from chronic price rise

Representational image. Reuters

 

Railway Minister DV Sadananda Gowda has set the ball rolling with the hike in passenger and freight rates. As expected the passenger rates hike has attracted backlash across the public sphere. It is natural for the common man to react to the fare hike particularly daily commuters in metro cities, where the fare hike has been particularly steep. Though, there is also talk of the fare hike being pulled back, especially for the daily commuters. This might be a welcome step but the Railways as the lifeline of the nation can actually help reduce the inflation affecting the common man.

One of the biggest challenge in controlling food inflation that affects essentials like fruits, vegetables, eggs and other meat products is the logistics cost. First, the absence of a cold chain from rural areas to the city means that the wastages are high due to spoilage of product. Therefore the cost of the product sold includes the cost of the product that is wastage. Wastage can vary from 25% to 45 % depending upon the perishability of the commodity.

Second, long distance transportation of these products is unviable because barriers for road transportations, like tolls, checks for tax payment. Waiting at tollgates accounts for almost 50 per cent of stoppage delays on an average trip and toll fees and sales tax contribute to 15 per cent of trip expenses. Each year, fuel worth between Rs 100 and 150 billion (USD $1.48 to $2.77 billion) is wasted on highways and check posts, according to estimates by Transport Corporation of India.

Third, because of the dependence on road transportation the fuel bill directly impacts inflation or price rise of essentials. Indian trucks are overloaded in one direction and return with an empty haul. And almost 65 per cent of the diesel consumer in the country is used in transportation activities, this constitutes 6.6 % of the GDP. And under recoveries are the highest for diesel inspite of price hikes every month.

The Railways have already laid down a well air-conditioned passenger network via the metros trains in big cities. Several more cities are planning metros. The idea is to use this very network for carrying essential commodities in the night, when passengers do not use the network. Cities already insist that the freight carrying trucks can only enter city limits at night, so the ecosystem is already used to working at night. They need to be provided an alternative by the Railways on the existing network of metros and EMUs. The EMU network already connects the main cities to nearby cities which are the hub or the centers for production of the essentials.

The EMU network has to have cold chain rolling stock for vendors and producers of essential commodities to bring them into the cities. This has to be supplemented by the freight metro network for reaching into the different distribution points within the city. The stations and the nearby areas can also be developed as farmers markets for these essentials giving the farmer or producer a direct connect with the consumer. This will be the biggest help that the Rail Minister can provide to the Aam Admi suffering from chronic price rise of essentials.

Yatish Rajawat is the founder Editor in Chief of Business Bhaskar India’s first hindi language business newspaper, and the former Managing Editor of Dainik Bhaskar group, he tweets @yatishrajawat.

http://firstbiz.firstpost.com/economy/railways-can-provide-relief-aam-admi-suffering-chronic-price-rise-89001.html

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Ideas to transform Freight service of Indian Railways

ECONOMIC ENGINE
Six ideas that can help Indian Railways transform its mainstay freight business

By K. Yatish Rajawat June 23, 2014
K. Yatish Rajawat is the founding editor in chief of Business Bhaskar, India’s first Hindi business newspaper.

Railways need new ideas. R

The hike in railways fares and freight rates has sparked outrage. Political parties (mainly the Congress, but also BJP allies such as the Shiv Sena) are citing it as an example of an anti-people measure. The Modi government would be well served by seizing the narrative and making strong decisions needed to revive the railways. Smart policies now could help make Indian Railways the lifeline of the country, a true economic engine.
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Freight services are profitable and account for more than two-thirds of revenues; it is the arm of Railways that allows it to so heavily subsidize passenger fares. And yet development of freight services has been ignored over the years, as rail loses market share to roads. To make the critical segment more efficient, some reforms to consider:
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Charge the road more traveled

Railways charges freight on the basis of the shortest route to the destination, not on the number of miles or kilometers traveled. Yet congestion on major routes means that the shortest route is rarely taken. This needs to change, and every cargo booking needs to be made profitable.
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Iron out exemptions

Iron ore bookings and the concessional scams around it has been a major area for losses for the Railways. South Eastern Railways has admitted to freight evasion of Rs1875.63 crore ($312 million) in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This will ensure cash flow and check evasions.
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Improve freight infrastructure

There is poor capacity of both rolling stock and locomotives for freight. While local leaders and Parliamentarians routinely raise issues facing passengers, freight movers don’t form a constituency and their grievances are not heard. Procurement of locomotives is poor because of dependence on internal manufacturing. Railways need to look at lease and maintenance models to augment capacity. Look at private airlines—they all operate with leased aircraft. Domestic production of wagons have also been inadequate. Options in leasing and financing, as well as imports from China need to be explored. The existing information infrastructure—the Freight Operation Information System (FOIS)—is beneficial to bulk cargo transporters, but is insufficient. It should be expanded to allow bookings on the same platform. Booking a rake should be as simple as buying a passenger ticket.
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Small projects are key

Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, at an annualized growth rate of 7.6% during 2012-17, according to Aranca Research. Expansion of infrastructure is not keeping pace with this growth. One gigantic project, the $16.6 billion Dedicated Freight Corridor (DFC), is stuck with land acquisitions and financing issues. Smaller projects—some 800 odd ones—are not getting enough attention because of the obsession with DFC. While DFC was originally slated for completion by 2017, its balancesheet says project execution worth just $400 million has taken place so far. This mindset of all or nothing has to change, incremental capacity is as important and smaller projects between ports and industrial clusters need to be developed as well.
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Partnership models have lost steam

Railways has tried the public-private partnership model. The success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance, the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. Even then no progress has taken place on it since then. The policy needs to be revised. All capacity expansion projects should be monitored by the PMO and a status report should be included in the rail budget.
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Make railways viable for perishables

Commodity-wise loading models needs to be adopted at major freight terminals so perishables can also consider railways as an alternative. In fact, with a little bit of imagination, this can be connected to the metro networks currently operating in some cities and are coming up in several more. The rolling stock on the metro tracks is designed for passengers, but can be repurposed into late-night freight metro carrying essentials into city centres. It will help cut the logistics cost for vegetable and fruit vendors. Currently they rely on the road and it is expensive. Besides, most cities restrict the entry of trucks till late night, increasing the waiting period and energy consumption in refrigerated trucks. Railways can complement this with a last-mile cold chain system for vegetables and fruits. Availability of fresh vegetables, eggs and other essentials at metro railway station will be a major convenience for returning home from work.
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Follow Yatish on Twitter at @yatishrajawat. We welcome your comments at ideas@qz.com.

http://qz.com/224805/six-ideas-that-can-help-indian-railways-transform-its-mainstay-freight-business/

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FDI in defence only if it is followed by local jobs

RIGHT POLICY
There’s only one relevant question to ask foreign investors eyeing India’s arms sector

By K. Yatish Rajawat June 19, 2014
K. Yatish Rajawat is the founding editor-in-chief of Business Bhaskar, India’s first Hindi business newspaper.
Investment or foreign direct investment is seen as a panacea for everything—a piece of conventional wisdom you see espoused every day by some expert or other. After the new Indian government was sworn in, the clamour for FDI in defence has reached a peak. The noise is so loud that the defence minister is reported to be seriously contemplating it.
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Almost every problem in defence—including slowdown in defence procurement and defence preparedness—is expected to get resolved by allowing 100% foreign ownership in the sector. This is the moment to pause. What is at stake here?
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Permitting FDI in defence has huge ramifications for geo-political relationships, the economy and jobs. India is the largest importer of defence equipment in the world, accounting for 14% of international arms imports. Some 75% of India’s arms come from Russia, a legacy of the Cold War. The US accounts for just 7%. If New Delhi were to allow FDI in the sector, US and European companies would benefit.
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From India’s point of view, the question to consider it is how many jobs FDI in defence could generate. Creation of jobs is vital for India. According to data from the National Sample Survey Organization, employment-generation rate during 2010-12 was a low 2.2%. This has led to a 16.3% unemployment rate among youth who are graduates.
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So far, foreign companies are allowed only a 26% stake in defence companies. Indian companies want this limit to continue. This level gives Indian businesses a profitable exit option. In the past, Indian lobbying body FICCI has opposed proposals to raise the limit of foreign companies in the defence sector to 51%.
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Lobbyists for FDI argue that multinational corporations will bring technology and inputs only if they have majority of full control over their investment. They claim that this investment will create two million jobs—but it isn’t clear how this will happen. Technology transfers do not necessary result in jobs or local production.
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In the past, foreign companies have been reluctant to transfer core technology. Even for mass consumer items like mobile phones and computers, core technology is never transferred. Instead, components are imported and assembled to meet local production requirements. Nokia’s plant in Sriperambudur, Tamil Nadu, for instance, added local software and regional keyboards and assembled the core unit (before it was orphaned following a tax claim). But all components are manufactured abroad. Only the charger, which uses the lowest level of technology, is manufactured by its vendor Foxxconn in India. The lack of technology transfer is evident from the low wages: workers in this factor earned Rs6,000 per month on average.
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There is even a fallacy that allowing MNCs into India with 100% stakes will ensure that their technology will percolate into the country and result in domestic production. This argument is made by geo-political experts with little understanding of how business works. A fully foreign-owned Indian company will act as little more than a tax optimizing agent to benefit from the country’s free trade agreements with various low-tax nations. When multi-national companies set up Indian arms, they end up importing from countries like Singapore or Dubai (FTZ) to India. Fully owned Indian companies are preferred as all the benefit of transfer pricing can be captured and taxes avoided. When Indian government pressurises them to begin manufacturing, they set up assembly units. Almost every device or mobile maker uses either a fully owned subsidiary or one of the large distributors to import into the country. None of this results in creation of jobs of any value in India.
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FICCI and other domestic lobbying bodies have been insisting on minimum capitalization of $100 million as a requirement for allowing FDI. Again the capitalization of the company does not necessarily solve the issue. A high level of capitalization does not mean that it will result into investments or jobs.
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Instead, the policy should specify how many jobs the company should create for every million dollars of its contract with the government. It should state how these jobs will scale up in value and expertise over the period of the deal. Companies giving the most appealing option should be given the contract, all other conditions remaining the same. The debate needs to shift away from companies to people, and the people want jobs.
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Follow Yatish on Twitter at @yatishrajawat. We welcome your comments at ideas@qz.com.

http://qz.com/220260/theres-only-one-relevant-question-to-ask-foreign-investors-eyeing-indias-arms-sector/

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A new political elite

How Modi’s victory has created a new political elite in India
May 18, 2014 11:52 IST
#BJP #Election results 2014 #India #Indian small towns #Lok Sabha elections 2014 #LS polls #Narendra Modi
by K Yatish Rajawat
The aspirations of small town India has spoken loudly in Modi’s mandate. It is not an easy mandate it comes with sky high expectations. PM designate Narendra Damodardas Modi has to meet them, and this will lead to the biggest shake up in Delhi’s power elites. The edifice of the ecosystem is already shivering, anticipating the change and there are several reasons for it.
One, Modi’s win is the rise of a first generation politician representing the new aspirational class. He understands the impatience of the aspirational class well. It will also mean that there will be little room for bureaucrats and officials who try to explain the country to the new set of rulers. There will be little space for planners/explainers but a huge need for implementers. That is why there is so much talk about dismantling the Planning Commission. It also means that Babus used to planning on files will lose out to a younger aspiring lot that has more recent implementation experience in states.
Narendra Modi. Agencies.Narendra Modi. Agencies.
Second, though Modi is not a Delhi based politician he has worked in Delhi as BJP’s spokesperson and understands the Delhi media’s pressure points well. This will again shake up the cozy combine of bureaucrats and their cliques of journalists. The natural hierarchy of bureaucrats who have worked in Delhi for the majority of their life and have developed cliques with business and journalists will give way to a new order. Babus owing their existence because of their proximity to business or journalists will not find it easy in the new regime.
Third, is the rise of a more holistic view of India rather than a Delhi based myopic view. Modi’s connect with India is higher due to his travels as a Pracharak. An RSS Pracharak becomes ultra-practical. He does not have any resources to support him and is totally dependent on well- wishers of the RSS in the society. At the same time he needs the society to follow the higher ideals that he is preaching. This is what gives the PM designate that zeal. The Pracharak appeals to the patriotic fervor first, culture second and religion follows much later.
Living on the largesse also changes his view towards poor, he does not see them as dole takers or seekers. Modi has a far more granular view of what it takes to bring people out of poverty. UPA needed a motley band of jhola carrying elitists to understand the poor and make policies for them. This unholy alliance between party and the elites made and explained policies to politicians. Bureaucrats and their families with their own NGOs/think tanks formed the triumvirate of this alliance and controlled government dole. RSS and its affliated organization will assert itself much more strongly in this space now. This will affect a legion of second grade bureaucrats surviving on the bloat and dole.Fourth, Modi as a Gujarati does have a natural tendency to favor business.
He does not look at business as just a tax provider and knows that business will do anything for a higher profit. He knows that government needs to harness the animal spirits of business to create job growth. He will support business but he will look beyond tax generation to job creation. He has a better understanding of which industry is a better job generator. This will change the approach that the industry chambers have towards the government. The standard Industry associations line that good business is good for economic growth will change.
The lobbying for policy change will change as both babus and chambers realize that business owners have a better access to the new regime. Their role as facilitators will shift towards balancing public expectations with business expectations. Industry chambers will have to adjust to shift in power within the babudom. A new breed of industrialists from states will acquire center stage in Delhi and even within Industry chambers as the new regimes favorites acquire control.
Fifth, Modi understands the trapping of political power and understands the need of people to be closer to power better than most leaders. While the Congress President did not have to struggle for getting power from an early age, Manmohan Singh rose to power as a technocrat. Modi has got to power by being a pure populist leader, this means he can motivate people by making them believe in a higher cause. It is the role of a populist leaders to weave dreams, though their success depends upon implementing them.
The organization skills of the party and RSS combined with Modi’s skills in tapping into the aspirations and anger created the momentum. He appeals to the self- respect of people by assuring them that it is possible to aspire for better. Due to this he has decimated regional parties and leaders like Mayawati, Sharad Yadav, Ajit Singh and several others who were surviving on caste based votes and failed to read the aspirations. This has a ripple effect on bureaucrats who survived in Delhi, due to their proximity to regional politicians due to caste and cadre. The fall of these regional parties means that these babus are now desperately searching new mentors fearing postings to the states. And thanks to MMS technocrats are now looked down upon and will not find space in the new regime.
Sixth, this is about corruption. Here we need to distinguish corruption on the basis of the level it occurs. Highest level is about crony capitalists bending the ears of politicians and bureaucrats to get favorable policy change. Another level is the one that a common man faces this involves speed money whenever they touch the government for work. The latter is more important to vast majority as it touches their pocket, and this is the message that AAP has to take home. An ordinary citizen in a small town cannot really fathom the thousands of crores that exchanges hand at the highest level. He does not choose his politician on the basis of corruption at the highest level his criteria are different.
For the aspirational class the moral compass corrects slowly, sometimes over a generation. The question of right or wrong for someone who has never experienced surplus income or even steady income is very different from those who see income as a right. How the new regime recognizes this aspect of the aspirational class, controls it and governs it will determine the future.
The author tweets at @yatishrajawat

a link to the article :http://www.firstpost.com/politics/how-modis-victory-has-created-a-new-political-elite-1530809.html

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Why is the govt so keen on a flop telecom auction ?

There seems to be a surprising haste in calling the spectrum just auctioned in India as a flop. Even the government which auctioned it seems to be keen on calling it a flop.

It has even convinced media and others to see its action as a flop. Why is it so:

1. It takes the steam out of the CAG charges that the government lost Rs 1.76 lakh crores. CAG had used the 3G spectrum prices to predict he loss to the govt.

2 It will allow the govt the leverage and reprice the spectrum or even move away from an auction system for allocation.

3. It also blow hole in the arguments given by Supreme court that the auction is the best way to price natural resources.

Now the facts

1. The incumbents or the existing spectrum holders did not bid as they already have too much spectrum,Moreover the pricing in this round of auction would determine the pricing when they go for an extension of their existing 20 year license, coming up for renewal next year.

2. Some circles like Delhi and Mumbai did not receive any new bidders as these circles already have so many players. The competition in these markets is so high, plus the incumbent seem to have enough spectrum for growth or expansion. Therefore neither new nor existing players bid for spectrum in these markets. It should not be seen as a failure of the auction process or the pricing.
While these high revenue circles are important the high number of players mean that the overall margins are low. And the penetration is almost hundred per cent. These circles are also not attractive to new comers due to the high cost of customer acquisition.

3. The banks are not keen to finance new telecom players hence there were no new bidders in the auction. Only those players who have their licenses cancelled came back to bid for the spectrum, these player have already committed investment and have to get the spectrum.

Continue reading

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