Monday 2 November 2015

A Criticism of India's Aviation Policy


Published in Swarajya on October 25th
http://swarajyamag.com/biz/excessive-government-interference-is-strangling-civil-aviation/

I view the performance of this government vis a vis the economy in poor light for a variety of reasons. The argument that it is better than the previous government certainly does have some truth to it but that shouldn’t become an excuse for the non/under-performance of the current government. One sector in which this government has performed disastrously is the Aviation Sector. In this article, I seek to demonstrate how.

‘PM Modi concerned over predatory pricing by airlines’; ‘PM Modi Wants Cheaper Airfares, Airlines to be told’.
Let us first look at what Predatory Pricing is --- it is one of the many popular myths about Markets which propounds the view that certain companies adopt a strategy of offering prices low enough to drive away competitors (i.e. lower than average cost) creating monopolies. It along with the other ‘evil’- price gouging; has very little economic logic to back it up. [1]
The first of the above two headlines is from Aug 27[2] and the second came out on September 2[3]. It took 6 days for the Prime Minister’s concern to shift from ‘Predatory Pricing’ to wanting ‘Cheaper fares’!!
 According to the second news report, i.e. on Sept 2, the MoS of Civil Aviation Dr. Mahesh Sharma said, "It is a competitive market that determines the pricing of air tickets but the government of India, including the Prime Minister, is concerned about passing on the benefit to passengers;….. Soon, we will have a meeting with airlines on predatory pricing." The benefit he is talking about is the reduced ATF prices- not out of any cut in central ATF taxes but a result of a fall in the global crude prices being passed on by Indian Oil Marketing Companies i.e. OMCs .
This isn’t the only time the Minister has revealed his lack of understanding of economics. On the 27th of June he had remarked[4] ,“Predatory pricing by airlines is a big issue. A large section of the public and even parliamentarians have raised the issue that airlines charge Rs 30,000-40,000 for a ticket when a passenger has to travel in some emergency.”
The fact that there is very little evidence to back up the charge of ‘Predatory Pricing’ hasn’t stopped our ‘Consumer-protection Associations’, politicians, and the pen-pushing bureaucrats from using it as an excuse for price control and a more regulated sector. It appears that the only ‘pricing policy’ of this government vis-a vis aviation seems to be- Interfere in Market Process erratically whilst following the dictum of maximum government.
Going back in time a little, we come across detailed suggestions from the Aviation Minister Ashok Gajapati Raju’s deputy MoS Dr. Sharma on how this ‘Pricing Policy’ can be structured as[5] :
a. Setting of Price Ranges for Airfares;
b. DGCA assessment of fares during different seasons for fixing ‘appropriate’ price caps; and
c. Using Air India’s fares as the basis for pricing mechanisms and then cutting Air India’s fares on select routes.

It is pertinent to note that although both Minister Raju and MoS Dr. Sharma have advocated some form of pricing regulation, MoS Dr. Sharma seems to be the one pushing for it rather vociferously. It is frightening to see a conservative government being led by a Prime Minister who frequently used ‘Minimum Government, Maximum Governance’ in his campaign, advocate such brazen regulatory intervention into Aviation Markets!

Aviation Ministry’s Infighting –
Conflict within an organization isn’t good, especially so if the organization makes decisions which affect millions of people. The Aviation Ministry has been according to various news reports [6]plagued by infighting  which  might be the real reason behind the delay in release of the draft Aviation Policy. The Civil Aviation Minister appears to advocate less government intervention and has announced multiple times that the disastrous 5/20 rule will be scrapped. His deputy who seems to be gunning for his post- Dr. Mahesh Sharma does the exact opposite advocating institution of price control mechanisms and other forms of government intervention for the usual reasons, public benefit and air connectivity to backward areas.
Take the case of ‘Baggage Charges Incident’. Some no-frills airlines had proposed to the Directorate General of Civil Aviation (DGCA) that they would charge for Check in Baggage and also institute a Zero Baggage Fare to enable light travellers to benefit from lower fares and at the same time encourage such light travelling. The MoS Dr. Sharma directed the Aviation Ministry on June 27th to disallow the same. The reason he gave was laughable – ‘Such a move, if allowed to go ahead will be a dampener in air traffic growth in India’. According to him, lower prices will lead to reduced demand for air travel. Is it too much to expect the Minister of State for Civil Aviation to know the Law of Demand and Supply? On July 1st, Minister Raju contradicted his Junior Minister’s remarks saying -
‘Nothing is free, everything is paid for, whether it is your baggage or ticket or things like that… Airlines at one point of time were considered elitist, now it is not and there are multiple people who (travel by air)’. He later remarked that this decision needs to left to the regulator.
This is not the only time such disputes and ‘Differences of Opinion’ have occurred in the ministry -
the NCR Airport Issue , regulation of fares in the festive season and many more.

Air India
Recently, Rohit Nandan’s successor as the CMD of Air India was announced as Ashwani Lohani , a non IAS officer (Thank the Gods!!, after 12 years). The new CMD calls himself Mr. Turnaround and is reputed to have turned around ITDC during the ABV years. Previously, Mr. Lohani has claimed that he will turnaround Air India within a year, if given a chance[7], which is hard to believe. Air India had asked for a revision of the original Turn Around Plan (TAP) under which the GoI had agreed to provide a 30,000 crore infusion into Air India over a period of 10 years in a phased manner subject to Air India achieving certain targets. SBI Caps which had prepared this turnaround plan had brilliantly assumed crude @ $45 for the entire period of the plan (It had made other brilliant assumptions[8]). One should rightly put the blame for that on the UPA government. The present government though has tasked the same SBI Caps with making the revision to the TAP and no matter how hard you try, the error this time is of our minimum government.
One would think that they would have atleast put a stop to the gravy train that Air India is to all sorts of powerful individuals – MPs, Management of Air India, the employees, and our bureaucrats; but no, this too continues in various forms. Our “Minimum Government “ continues to use Air India as a Foreign Policy instrument (continuing a long standing tradition), the latest instance of which was the announcement of non-stop flights to San Francisco from New Delhi during the Prime Minister’s recent visit to the US. This despite the fact that no viability study of the same has been conducted and such foreign operations have been bleeding Air India dry by contributing to almost 70% of the operational losses of Air India[9]! The Prime Minister funnily told the audience at the Facebook Townhall that his 4D’s include De-regulate (Dear Citizens of India, happy De-regulation!!). While this de-regulation happens, Air India continues to be the poison pill of Indian Aviation.
Green shoots of Progress-

The 5/20 rule.
The infamous 5/20 rule makes it compulsory for airlines to have a minimum of 5 years of flying history and 20 aircraft to be able to fly to overseas destinations. It is by its very nature anti-competitive as it prevents new entrants from operating certain routes of established airlines, thus lowering the prices. The only organizations which benefit from this rule are the established airlines like Jet Airways and IndiGo which are afraid of loss of margins due to increased competition in profitable international routes. 
I’m of the firm belief that the person who thought up this rule should be given an award of some sort. Only a brilliant mind can think up such innovative ways to screw the consumer.

The Minister of Civil Aviation Mr. Raju has repeatedly announced that this rule would be repealed. He has been announcing the same for almost 15 months and that’s about it. Though, no progress  has been made on actually removing the rule. Then we heard that the PM wanted the rule to go. Good News Finally?? Think Again. The Ministry of Civil Aviation in its infinite wisdom is thinking of ‘replacing’ the rule[10]. So we don’t know as of now how this issue will play out. But we still have to commend the Prime Minister for atleast taking a pro-growth stand as he reportedly said[11] - "If the rule is stifling the growth of our carriers, the rule should completely be abolished and not replaced. What is the need to replace a rule with something when the rule itself is not pro-growth,"

The Government needs to get out of the way!
For Indian Aviation to soar, the Government needs to take a relook at it’s policy of interference, high taxes, continuing to fund poison pills, and creating ever monopolising rules for the ‘public benefit’. It has to realize that this is the exact same policy which their predecessors tried and which has had disastrous consequences. It needs to learn to accept that they can’t run, control, and extort Indian Aviation while ‘planning’ their way out of Air India’s financial abyss. It needs to ‘Get out of the Way’ soon to achieve “Minimum Government” and de-regulation.



[1] For More on the same- http://www.cato.org/publications/policy-analysis/myth-predatory-pricing
[2] http://www.firstpost.com/business/pm-modis-concern-over-predatory-airfares-likely-cess-on-tickets-2410814.html
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Utopia

Utopia
Island where all becomes clear.

Solid ground beneath your feet.

The only roads are those that offer access.

Bushes bend beneath the weight of proofs.

The Tree of Valid Supposition grows here
with branches disentangled since time immemorial.

The Tree of Understanding, dazzlingly straight and simple,
sprouts by the spring called Now I Get It.

The thicker the woods, the vaster the vista:
the Valley of Obviously.

If any doubts arise, the wind dispels them instantly.

Echoes stir unsummoned
and eagerly explain all the secrets of the worlds.

On the right a cave where Meaning lies.

On the left the Lake of Deep Conviction.
Truth breaks from the bottom and bobs to the surface.

Unshakable Confidence towers over the valley.
Its peak offers an excellent view of the Essence of Things.

For all its charms, the island is uninhabited,
and the faint footprints scattered on its beaches
turn without exception to the sea.

As if all you can do here is leave
and plunge, never to return, into the depths.

Into unfathomable life.

IF there is any poem by Wislawa that Ive come to love, it is her poem Utopia. This ex- communist Polish poet speaks to my heart as I am an ex-communist myself.  I couldn’t confirm but I deduced through secondary sources that she wrote this poem sometime after 1960. That was the period during which the scourge of Communism/ Marxism was spreading throughout Europe like wild-fire. She had probably realised due to the Polish Government’s attempts to censor her poem; that the communist/ Marxist/ Socialistic ideology and their governance machinery was inherently fascist.
Like Islam is presented today by ideologues cum ‘intellectuals’ and fanatics as the answer to all human problems and the perfect solution; Communism was presented by leftist ideolouges, intellectuals, etc as the panacea to all human problems.

Wisława Szymborska-Włodek  (2 July 1923 – 1 February 2012) was a Polish poet, essayist, and translator. She was the recipient of the 1996 Nobel Prize in Literature.
Szymborska was born in Prowent. She died 1 February 2012 at home in Kraków (a Polish City) from natural causes, aged 88.

Poland under the guidance of the leaders of the Soviet was heading towards the said ‘Utopia’; atleast they told their citizens that they were. An utopic world would be one with perfect knowledge
(Echoes stir unsummoned
and eagerly explain all the secrets of the worlds )
as well as equal prosperity. That the committees i.e. the Politburos of the world even thought that they through ‘collective action’ and ‘scientific committees’ could attain perfect knowledge was and continues to be laughable in itself. The part about shared prosperity turned out to be a farce in real life with hundreds of instances of mass starvation, rampant shortages and general statism. It was in this world that the poem  ‘Utopia’ was written by Wislawa Symborska.

The poet refers to the Utopic world as an Island. One wherin ‘ all becomes clear’ i.e. one with perfect knowledge. It may be wrong to read too much into a translated version of a poem but I find it extremely interesting that the poet has used the line ‘The only roads are those that offer access’. This is because every Tom, Dick and Harry in communist countries would offer a foreigner or a member of the elite access to the Politburo i.e. the uber elite in exchange for a large consideration. The poet then uses symbolism –‘ Tree of Valid Supposition ‘ and ‘Tree of Understanding’ to describe the intelligentsia in such an utopia who held beliefs about armed proletarian revolution which they could lead from their armchairs ; Dialectical Materialism in their eyes was true (A valid Supposition ) giving way to the Tree of Understanding which grew in the springs of ‘Now I get it’ . The communists used Marx’s fuzzy concept of Dialectical Materialism (The spring) to analyse everything from Human behavior to animal behavior (Tree of Understanding).

 The poet uses – ‘Valley of Obviously ‘, ‘If any doubts arise, the wind dispels them instantly.’ to again describe the said Utopia of perfect knowledge wherein all doubts are dispelled instantly. She is probably referring to Communist attempts to dispel all doubters through the dialectical red armies. The poet goes on describe the Island by personifying Meaning and Deep Conviction as caves on the Island ; she then goes on to say "For all its charms, the island is uninhabited,". People for all their demands of security  –financial and physical are too adventurous to remain in such a boring place where there is no purpose to life. She ends with the words ‘As if all you can do here is leave| and plunge, never to return, into the depths.|| Into unfathomable life. ‘The last lines capture the essence of the poem quite clearly.

The poet uses poetic devices like Personification by capitalizing words like ‘Tree, Understanding , Supposition, etc. She uses symbolism in a very elegant way – ‘On the right a cave where Meaning lies.
On the left the Lake of Deep Conviction .’ 


One wonders if she is writing about a Utopic world or a Dystopic world. Events in the 1980s proved that the latter was indeed true. The horrors of the Communist regimes in Asia and Europe came to be known by the rest of the world and the true face of the dystopic ,despotic regimes of Eastern Europe and Eurasia horrified the world by the scale of deprivation, large scale murder and oppressiveness. 
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Sunday 6 September 2015

On the Syrian Refugee Crisis

Ive so far refrained from commenting too much on the Syrian Refugee Crisis..
Its now becoming too entertaining for me to stay away...
1. The Middle-east crisis is a side-effect of civilizational collapse exacerbated by US Interventionism . They poured ghee on to the funeral pyre. Lots of it.
2. Most of the refugees are Sunni Syrians. This wholesale depopulation will strengthen Assad's hand.
3. You are foolish to expect Gulf countries to accept these refugees. They aren't countries, they are private property of the sheiks and these trespassers are a huge burden on their private purses.
This is what will happen in Europe
1. These 'refugees' will turn out to be so 'scarred' by the civil war that they will go straight into the inevitably welcoming arms of the Wahabi NGOs in al-Europe .
2. They will start ghettoizing and will inevitably start demanding state handouts as a right.
3. Usually, 2nd generation economic migrants start asserting their original ethnic/religious identities for various reasons; and end up radicalized. This radicalization will start in the first generation itself.
4. Racist movements will start and ultra-right wing parties will inevitably gain momentum. Watch out for MLP in France.
Other comments on this
1. Those of you who take out your hankies for this dead boy didnt take them out for those Yazidi children dying the same time last year. Nor did you read, re-read and share op-eds on the genocide of Kashmiri Pandits in India who are now abandoned to fate by their own nation- this after facing the brunt of Jihad in the land they hold holy.
2. Far worse things have happened in the Levant. Shia men have been slaughtered (by knives) in the hundreds, Yazidi children and women have been raped and sold as property and killed after become useless for intended use.
3.The propaganda campaign by assorted liberals, Shariah- Bolsheviks and Salafi fucktards has been good this time around. The use of 'Useful Idiots' has been better.
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Thursday 30 July 2015

Cities and Aviation Policy

The economic potential of many good tier two cities like Mysore , Puducherry, Kanpur, etc have been stunted by the lack of speedy connectivity with the economic hubs of our country. One can be certain that the Land Acquisition mess wont be solved anytime in the near future. This decreases the possibility of speeding up connectivity through railways or bigger Highways. The only hope is Air Travel.

Let me take the example of Mysore. Although it has been on the nation's aviation map since the 1950s , it has extremely irregular services and as of now, even those services have stopped. So what's preventing Mysore, which is about an hour's travel by air from Bangalore from being properly connected by Air ? The short answer is the usual- Bad Government Policy.

The Union Government through the Aviation Ministry and the DGCA (Directorate General of Civil Aviation) has succumbed to a lobby of already existing airlines and stood silent as a cartel was formed. This cartel has lobbied the DGCA to create ever more complex rules to prevent entry of new players into their 'cash cow' markets such as international flying. Air Asia India’s CEO Mittu Chandiliya rightly said –‘ I believe in free markets and open skies, but if you look at the policies we have in place, I don’t think we have that at all.’ [i]

Our policymakers, in the false belief that airports and air travel isnt useful to the 'poor' that they supposedly serve have over the years created and enforced an extortive tax policy. The Union Government levies an 18% duty on Aviation Turbine Fuel(ATF) which includes 8% excise duty and 10% customs duty. A weighted average of the taxes the states levy is around 22%. So airlines end up paying around 28% of fuel expenditure as taxes. Compare this with China which has no consumption tax on Jet Fuel[ii] .

As Captain Gopinath writes in the ET – ‘..fuel and taxes constitute 45 per cent of an air ticket, airport charges exceed 20 per cent on long distance flights and make up more than 30 per cent of the airfare on shorter ones’[iii] What this ensures is – Airlines use countries like Singapore, Sri Lanka and Bangladesh for their MRO (Maintenance, Repair and Overhaul) and many a times through clever scheduling- refuelling aircrafts. We are not only losing a lot of jobs due this policy, but the government is also losing a lot of revenue that could have been generated from these activities.

As usual, the response of the Ministry of Aviation is proposing a uniform ATF tax for the entire union which will subsume state taxes. Its been proposing one for about 7 years atleast now. Nothing has and ever will come out of it as states are demanding that fuel taxes be included in the exempted list for the Goods and Services Tax. That doesn’t stop them from foolishly trying it though. Recently, the Aviation minister started requesting states directly to reduce such taxes. It has started bearing some fruits in Andhra Pradesh where VAT on ATF was cut to 1% ! [iv].

Some other states like West Bengal, Jharkhand, Chhattisgarh and Madhya Pradesh have tried this too and it is showing expected results i.e. more passengers, scheduled flights and newer routes[v]. It has also predictably led to fall in passenger fares. And guess what, most of the new flights are to small towns and cities as they don’t levy state taxes on ATF in these places. (The very justification of the infamous 5/20 rule and ‘domestic credits’ is to increase domestic connectivity to smaller towns and cities).

This increased connectivity is not only contributing to the local economy in terms of an increased tourism and hospitality sector, it is also enabling the advent of ecommerce in these towns and cities. It also enables local manufacturers to better integrate into national and global supply chains. A win -win aint it?


[i] . http://www.business-standard.com/article/companies/airasia-india-chief-slams-red-tapism-wants-free-markets-and-open-skies-115062300306_1.html


[ii] http://www.platts.com/latest-news/oil/singapore/china-sees-limited-impact-from-higher-consumption-27888332


[iii] http://articles.economictimes.indiatimes.com/2014-07-08/news/51191434_1_aviation-sector-civil-aviation-new-airports


[iv] http://timesofindia.indiatimes.com/business/india-business/Andhra-Pradesh-government-slashes-VAT-on-ATF-to-1/articleshow/42832229.cms


[v] http://indianexpress.com/article/business/economy/small-town-india-takes-off-with-sharp-atf-cuts/
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Tuesday 28 July 2015

On Digital India

Observe the scheme carefully and how it operates...
Every Tom Dick and Harry in Electronics manufacturing announces a new plant for manufacturing X with capacity of Y/annum.Then a few days later, he writes op-eds and holds Press Conferences asking for a favorable duty structure. Government functionaries scared of a Modi pull up over not concentrating on Digital India in 'Mission Mode' usually acquiescence.
Digital India is brought up by every buffoon in the cabinet as a panacea to all ills and structural problems in Indian Industry. He/she is portrayed as a visionary minister using tech to solve problems by his media managers.
The government then announces that it will be investing N thousand crores in Telecom Infrastructure to enable the PM's Digital India dream to come true. Again statements are put out by Industry Leaders saying that Digital India is extremely important to India's future. 
Retards write op-eds on how improved connectivity due to government investment will enable Tier 2 cities to reach their full potential. What these baptist- bootlegger alliance of retards and buffons have managed to do is create an atmosphere wherein there is a general public demand for such badly structured investment.
To buttress the point the Digital India is amruta, new uses are pointed out- eliminating information asymmetries in Agricultural Markets (while continuously ignoring who caused those information asymmetries in the 1st place- government regulation in the form of APMC acts and ESMA ). The public- especially the middle class lap it up.
What is ignored is that government investment in this sector is 'needed' not because private players are not willing to invest there. They are! What prevents them from doing so is the amount of kickbacks they would have to shell out to government officials in the Center, State and Local Municipalities. There is also a general hysteria over telecom towers which governments have to mollify in the form of higher standards for towers. And as you all know, private players do a much better and efficient job then the white elephant BSNL.
So, the next time you read about how visionary this scheme is, remember that it is your tax money which is being wasted.
Ive written a bit on Telecom Markets in my post on Net Neutrality. Do check it out.http://notyetlokayata.blogspot.in/2015/04/on-net-neutrality-fracas.html
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Sunday 26 July 2015

Panditji's China Policy -1

Panditji's China policy can be summarized as 1 ounce of Delusion, 1 ounce of Misinformation and 2 ounces of stupidity. Panditji repeatedly sacrificed India's national interest in trying to take into account 'larger considerations' i.e. his 2 favorite bogeys - World Peace and The need for a continued Sino-Indian friendship.

 Let me elaborate a bit.
As Arun Shourie ji has shown in his  book- 'Self-Deception; India's China Policies - Origins, Premises, Lessons' , India's China Policy during Panditji's rule had a 2 step response to any Chinese Aggression.
1. Suppress Information
2. Deny

The phenomenon of our leaders(including the present PM Narendra Modi) repeatedly misleading the nation into reading more into statements and Joint Declarations than is warranted isnt new. It has rather ancient roots(I will elaborate on that some other day). In contemporary times, it started with Panditji.

Yes, you guessed it right- Tibet. Most of you may have read Sardar Patel's prophetic letter to Panditji warning him about the imperialistic designs of the Chinese. If not, do read it here- http://www.friendsoftibet.org/main/sardar.html

While the Chinese were screaming that they will 'Liberate Tibet', Pandiji in his delusion thought that no such thing will happen as it would be counterproductive for the Chinese themselves given the precarious position of their UNSC seat. He was deluded enough to think that the Chinese were afraid that the world would get a bad impression of them !!

When they did take over Tibet, Panditji started advocating meek acceptance. That didnt shock me. What shocked me were the reasons he gave for doing so-

1. ' In the long term view, India and China are two of the biggest countries in Asia bordering on each other and both with certain expansive tendencies, because of their vitality ' . Do notice how he paints India as having expansive tendencies to justify not responding to China's aggression even though India had born the brunt of aggression by outsiders for over a millennia by then.

2. ' We cannot save Tibet, as we should have liked to do, and our very atempts to save it might well bring greater trouble to it. It would be unfair to Tibet for us to bring this trouble upon her without having the capacity to help her effectively. It may be  possible, however, that we might help Tibet to retain a large measure of her autonomy. That would be good for Tibet and good for India. As far as I can see, this can only be done on the diplomatic level and by avoidance of making the present tension between India and China worse. '

Notice how Panditji uses 'as we should have liked to do'. This should be read in the context of the fact that he had kept the Tibetan Delegation in Delhi asking for his support waiting for months and when he did meet them, refused to do anything except help them diplomatically. Panditji still harbors the delusion that China would grant Tibet a large measure of autonomy. He then talks about diplomatic solutions. This should be read in the context that immediately after writing this , Panditji declares
 'I think that in no event should we sponsor's Tibet's appeal. I would think that it would be a good thing if the appeal is not heard in the Security Council or the General assembly. ......

Tibet I think is still grateful for the help Panditji gave 'diplomatically'!!

Note to readers- I have heavily drawn from Arun Shourie ji's book for this post.
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Monday 20 April 2015

On the Net Neutrality Fracas...

Different stakeholders describe and/or define Net Neutrality differently. The concept of Net Neutrality itself has evolved from being only about upholding the end to end principle to a whole lot more.  In India, the campaign to force Regulators to impose Net Neutrality has been led by medianama.com . One balks at the audacity of the campaign to force regulatory action akin to Regulation by vote on India’s most successful sector in post-Independence India: The Telecom Sector.

Net neutrality (NN) is generally construed to mean that TSPs(Telecom Service Providers) must treat all internet traffic on an equal basis, no matter its type or origin of content or means used to transmit packets. All points in a network should be able to connect to all other points in the network and service providers should be able to deliver traffic from one point to another seamlessly, without any differentiation on speed, access or price. The principle simply means that all internet traffic should be treated equally.
                               -Telecom Regulatory Authority of India (TRAI) Consultation Paper on Net Neutrality.
(http://www.trai.gov.in/WriteReaddata/ConsultationPaper/Document/OTT-CP-27032015.pdf)

‘ Net Neutrality is about:
– No telecom-style licensing of Internet companies
– No gateways (Internet.org, Airtel OneTouch Internet, Data VAS), censorship or selection;
– No speeding up of specific websites (that may or may not pay telcos)
– No “zero rating” or making some sites free over others (and that goes for you too, Wikipedia and twitter).’
                                        - Medianama.com which is leading the campaign for                                        Net Neutrality in India         
                                                         (More than 6 lac petitions sent to TRAI)
(http://www.medianama.com/2014/11/223-net-neutrality-simple-explanation/)

The campaigners have painted it as a question of life and death of the Internet’s openness and vibrancy. The language used to spread the message is pretty colourful too-
‘Airtel(India’s leading TSP) is killing the Internet’
‘ A battle to decide the fate of India’s Internet’
‘ Save the Internet’
‘Stop Screwing Up the Internet’
‘Stop raping consumer rights ‘ and much more…

Amidst all this righteous outrage, very few economists, investors, aware consumers, sector experts and journalists in India have stood up and spoke out against the campaigners ill-thought out demands and exposed the lack of economic logic in the systems they are demanding to be put in place by Regulators.

What troubles me the most is seeing some of my favourite opinion makers like Anand Ranganathan of Newslaundry , Mohandas Pai from the IT sector , Chitra Subramaniam of News Minute amongst others, who generally are pro- free markets , support Net Neutrality .

So what would Net Neutrality Regulation involve-
1) No Zero Rating (eg. Airtel Zero like services where Content providers like Flipkart or Facebook pay Airtel on behalf of Consumers so that their content is available to consumers for free over other players)
2) No Non-Discriminatory Access (A fancy way of saying TSPs wont be allowed to use price differentiation and ensuing Quality of Service i.e. QoS assurances on select content groups. They will have to give Porn and Communication between say two hospitals the same priority.) and TSPs would be barred from prioritizing their own apps over the rest by say- not charging for data charges on it.
3) No Throttling (Reducing or increasing the speeds of some when compared to the rest).
4) Telecom Service Providers are to be Dumb Networks and nothing more or less. Therefore Network Management wont be allowed. Network Management  is the process through which Networks prioritize various types of content to enable Network Decongestion and this concept is somewhat a continuation of Non- Discriminatory Access.

To enforce this, the Internet will have to be governed by the Regulators similar to say the Electricity Sector minus the price discrimination. I think this prospect will bring to your mind very fond memories of power outages wont it? This surely looks like it will help and incentivize innovation!!

A question which immediately comes to my mind is – How can government regulation increase or preserve the society’s freedom? Government Regulation can only ensure one thing- curtailment of freedom. If it does appear that it can increase freedom, you have not bothered to look – At whose expense?

By imposing regulations wherein you curtail the freedom of producers to price their products to conform to your wishes (Or the government on your behalf due to pressure put on it by you) is morally abhorring!! It is akin to legal plunder.
Bastiat was absolutely right in writing – ‘The law has been perverted by the influence of two entirely different causes: stupid greed and false philanthropy.’
(http://bastiat.org/en/the_law.html#SECTION_G014)

The Economics of Such Regulation-

Prophylactic/Preventive Regulation?

The entire gamut of such regulation will be a vertical anti- trust action. There is no conclusive evidence that Vertical Integration (Either through special deals or outright buys etc) results in reduction of economic welfare. There are models which predict that there is such a possibility but absolutely no empirical evidence. Nada.  Should the basis for such far- reaching regulation be non-existent proof ?Other Actions possible in the free market like Price Differentiation and Quality of Service assurances too haven’t been proven to be bad for economic welfare by empirical evidence.

So, in total, the campaigners are asking for Net Neutrality so that they have a preventive solution to a non problem?

Competition:-

Any such regulation ( which surely takes away Revenue Opportunities and freedom from producers) will impose huge costs on the Telecom Service Providers and thus decrease overall completion in the sector over time. This will ensure that consumers are left with lesser choices when choosing their TSPs. So are the campaigners trying to increase consumer welfare by decreasing the quantum of consumer choice ? Even I, a mere 1st year B.Com Hons student know that this extremely foolish.  So foolish that it borders on the nonsensical.

Net Neutrality concerns in the USA were based on the assumption that there was little consumer choice for most consumers. Is it the same in India ? There are >100 ISPs and >6 TSPs (with Unified Access Service Licences ) in total all over India. Does this reflect the paucity of consumer choice?
(http://www.trai.gov.in/Content/ProviderListDisp/3_ProviderListDisp.aspx
http://www.trai.gov.in/Content/ProviderListDisp/7_ProviderListDisp.aspx )

I’ll prove it to you through an example:-

When Airtel announced its plans to charge VOIP(Skype, Viber, etc) separately, how many other TSPs followed? None. Why did it drop the plan? Definitely not because some activists like Mahesh Murthy spoke out against it . It was because there was a very real possibility of Airtel losing urban consumers to its competitors. So, weren’t Consumers still ‘saved’ due to the nature of the market?

Research on this topic by the professionals:-

As argued in Network Neutrality and Consumer Welfare; Becker, Carlton and Sider (2010) Alternatives to net neutrality regulation exist: (i) customer-level testing and transparency regarding questionable practices permits “naming and shaming” of firms that are doing things customers don’t like, which often leads to prompt corrective action; (ii) antitrust enforcement should firms engage in anticompetitive practices.
(http://www.researchgate.net/profile/Dennis_Carlton/publication/228199403_Net_Neutrality_and_Consumer_Welfare/links/02e7e5397145f50657000000.pdf)

Another interesting paper on this issue is Prevention of Competition by Competition Law: Evidence from Unbundling Regulation on Fiber-Optic Networks in Japan, Minamihashi (2011). It presents empirical evidence from  Japan to show that ‘Competition in the service market (ISPs), was “bought” /enabled at the price of decreased competition in the facilities market(TSPs). The author develops a dynamic model of competition that he is able to estimate empirically to demonstrate that unbundling (forced separation of Infrastructure and service providers) did indeed reduce entry, investment and competition in this market.’
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1775357)

I got to know about both the above mentioned papers through- Economics Of Net Neutrality: A Review -Gerald R. Faulhaber. (http://assets.wharton.upenn.edu/~faulhabe/Econ_Net_Neut_Review.pdf)

Impact on Future Possible Innovation

 An additional problem of such intrusive regulation on a market and network which is still very much evolving  is such regulation doesn’t consider the costs imposed by it on Future Possible innovation. An example given in (http://assets.wharton.upenn.edu/~faulhabe/Econ_Net_Neut_Review.pdf) is that of Remote Medical Sensing Services which would require quality of Service Assurance from TSPs/ISPs which would be barred by Net Neutrality.

Another example I can think of is Auction Markets. As they evolve, and an increasing no. of auctions take place online, won’t the absence of Quality of Assurance Service from TSPs or ISPs reduce market efficiency ? Another is the Education Sector. Should TSPs and ISPs be barred from prioritizing Real Time Video Conferencing between a teacher in Bangalore and students in a small private school in the rural hinterlands over a service like porn (I have to stress here that I have nothing against online porn).

The question of Zero Rating
Most Indians love Coupons. Especially the urban Consumer who loves Big Bazaar and Reliance Fresh’s discount coupons. Yet the very same urban consumer is busy campaigning for Net Neutrality which would bar Content Providers from giving out such coupons in the form of Zero Rating! Don’t you find it weird ? I certainly do. Don’t these coupon users realise that they are aiding ‘unfair competition’ by big players who issue such coupons to turf out smaller players in segments of the FMCG market (This is where such coupons are usually given out) ? Now are they going to rant on twitter against Big Bazaar?
The answer to that is a big No.

The campaigners demand that all forms of Zero Rating like Airtel Zero and even internet.org should be banned by Regulation. Do they have an answer to the fact that 45% of the worlds TSPs/ISPs use some form of Zero Rating or the other? (http://www.fiercewireless.com/europe/story/report-45-operators-now-offer-least-one-zero-rated-app/2014-07-15) So our dear internet revolutionaries want to restrict the earning capacity of TSPs/ISPs which would not only mean lower telecom infrastructure investment by these companies in India but also other countries where they are invested in as they will have lesser investing capacity than other MNCs – Financial loss in India, Loss in Market Share followed by Financial Loss outside India. Great way to enable Indian Companies to become MNCs !!

Another effect these campaigners ignore is that when TSPs/ISPs offer highly used sites as a part of their Zero- Rating Services, this empowers people to use much more of the Internet than they used to as the sites that ate up most of their data limits earlier are for free and this saves them more data to use at no extra cost. Another way to put it would be that the per unit cost of data for consumers will fall, enabling them to get more bang for every buck they spend. Who will this benefit the most – The poor consumer especially in Developing countries will benefit the most out of it. The TSPs get increased revenues which will incentivize them to invest more in infrastructure and thus enabling more internet penetration (currently at a dismal 20%- TRAI Consultative paper). The Content providers who will be paying for this will get increased traffic to their websites and thus increased advertisement revenues.

Another important impact of Zero Rating Services is that it helps those consumers access Internet who would otherwise not access internet at all. Unlike Net Neutrality proponents who mostly give slogans and theoretical models as evidence, there is empirical evidence to prove that Zero Rating Helps Increase Internet Access

The Impact of Zero Rating Services on Internet Usage (In terms of Data and not users)
Paraguay    -> +50%
Kenya          -> +50%
Ghana         -> +85%
Nigeria        ->+154% 
(http://www.brookings.edu/~/media/research/files/papers/2015/02/13-digital-divide-developing-world-west/west_internet-access.pdf)
Last time I heard, India is a Developing Nation.  Although Zero Rating’s impact in India will not be as big as Praguay, Kenya, Ghana or Nigeria, it will be big enough to warrant attention and have a lasting impact.

To show to you the extremely positive impact Zero Rating can have-
‘In Zambia, the Women’s Rights Application (WRAPP) compiles information on women’s health and legal rights. Before connecting with Internet.org, only 1,000 women had used its website. But through the broader partnership, 15 percent of the country’s population that had access to the Internet was able to connect to the site.’
( http://fortune.com/2014/08/14/for-facebook-access-to-womens-rights-information-is-a-basic-one/
 and http://www.brookings.edu/~/media/research/files/papers/2015/02/13-digital-divide-developing-world-west/west_internet-access.pdf )

Banning Zero Rating is also harmful to start-ups in many ways -

1) It bars them from using innovative pricing strategies to capture market share from their competitors.
2) Such Bans hinder Internet penetration in Developing nations like India thus keeping such prospective markets unlocked. New Businesses are born when entrepreneurs see an opportunity to earn profits through offering their services. And these opportunities increase when the size of the market increases. Therefore by hindering the growth of the market, you are hindering innovation.


Grouping and Price Discrimination

 A whole lot of hue and cry has been about the possibility of TSPs/ISPs bundling / grouping services and in the process indulging in price discrimination. My question to these people –  I cant for the life of me understand what is wrong with this ? Who doesn’t discriminate in Pricing if given the opportunity and costs are less than benefits?

Every Tom, Dick and Harry started talking about Net Neutrality after the All India Bakchods’ video on this subject came out. The gang(AIB makers) lashed out against TSPs/ISPs saying that they want to ‘carve up the internet into a bunch of different sections so that you have to pay to access every single one of them separately. ‘

They then gave the analogy of a children’s park where the ‘consumer needs to pay Rs.100 to get in, Rs. 100 more to access the slides set –pack, Rs. 150 for the swing set pack, Rs. 200 for a high speed swing pack  ‘ . The end the analogy by saying ‘in a nut-shell, this is exactly what the telecom operators want to do right now.’

They then move on to specifics-
‘A Snapchat Pack for sending naked pictures to strangers on Snapchat’,  ‘Instagram Pack to click and post Kichidi pictures in Instagram’ and then go on to explain how ‘Zero Rating will be dangerous,etc’ if there is no Net Neutrality, an argument which I just debunked.

They go on to rant against TRAI for having put a ‘118 page long consultation paper’ and hinting that it was a deliberate attempt to hinder awareness about the subject. They then move on to fault the TSPs/ISPs for trying to earn more revenue from their investments. After their brilliant argument on how that is bad, they move on to specifics. They point out that Airtel’s Revenues from Data are increasing rapidly Quarter to Quarter and give the following figures.
Q1 2014- Near 1500 Crore
Q2 2014- Near 1800 Crore
Q3 2014- Near 2100 Crore
I will give you another set of figures and you can then decide -
Net Profits for these Quarters-
Q1 2014- 2,160.40 Crore
Q2 2014- 4,937.30 Crore
Q3 2014- 2,278.80 Crore
(Figures from moneycontrol.com)

I have used Standalone Figures for better accuracy on India operations. You have to see these figures in the light of the fact the Call Tariffs are increasing and the TSPs are slowly gaining Market Power in that segment of the market. Minting money in data eh ?

To illustrate how idiotic the video was, I will quote some more data to you-

Ticket Rates in the GRS Fantasy Park.
Admissions before 3.30 pm:
Adults (above 4'6" in height)
Rs. 575/-
Children (3' to 4'6" in height)
Rs. 475/-
Infants (below 3')
Free
Senior Citizens (above 65 years)
Rs. 300/-

Admissions after 3.30 pm:
Adults (above 4'6" in height)
Rs. 425/-
Children (3' to 4'6" in height)
Rs. 325/-




Ticket rates are valid for a one time use of all rides. Subsequent rides if ticketed will be charged separately.
 (http://grsfantasypark.com/pages/tickets-and-reservation/ticket-rates/ )

Wonder La-( http://www.wonderla.com/bangalore-amusement-park/park-timings-and-rates/ticket-prices.html )

Essel Amusement Park – (http://www.esselworld.in/entry-rates.html )

The video makers then go on to demand-
1. Freedom of Consumers to use the Internet the same way as the last 20 years i.e.to not be pushed into decisions by large companies.
2. Equality as the Internet is the last frontier where everybody are equal.
3. It is about the Future as Internet is a utility and not a luxury .And they give the example of other countries where net neutrality is ‘implemented’
   - USA, Brazil, Chile, Netherlands .

To me, these demands reflect 2 things- The video makers have not bothered to look into their subject and examples properly. They are to be ignored on serious issues as much as possible.

For the purpose of rebutting Point 1-
‘With the exception of Google's man in Washington DC, Vint Cerf (with whom Kahn developed TCP/IP), most of the senior engineers responsible for developing the packet switched internetworking of today oppose "Neutrality" legislation. Dave Farber, often called the grandfather of the internet, has been the most prominent critic.
Engineers fear rash legislation would inhibit the ability of systems engineers to improve latency and jitter issues needed to move data at speed.

"The internet is still pretty fragile today," said Kahn.’( Robert Kahn was one of the most senior
figures in the development of the internet ).
(http://www.theregister.co.uk/2007/01/18/kahn_net_neutrality_warning/?mt=1429030817614. )

I asked another veteran engineer who played an important part in the design of Internet as we know it today and also Wi-fi – Richard Bennet (He also has a deep interest in Indian Philosophy and Swami Vivekananda) a few Questions on the subject of Net Neutrality and it’s impact on Twitter. This is what he had to say-

SB(Shreyas Bharadwaj)- Any comment on India’s planned imposition of Net Neutrality?
RB(Richard Bennet) -Satpathy & Chandrasekhar think they’re members of Monaco’s Lok Sabha. Zero rating gets people online; may as well ban beef...

SB- Would you be ok with OTT services being brought under the regulatory ambit of TRAI as proposed ?
RB- Lesser Regulation of both will be ideal.

SB-Would Net Neutrality have any impact on internet penetration in India?
RB-Zero- Rating encourages adoption by providing users incentives and low prices. It’s cool that SMS promotes literacy by the way. Literacy isn’t a problem for Kerala but is one for the rest of India.

SB- Would Net Neutrality harm TSP’s ability to invest in the hinterlands?
RB – It can’t help. Foreclosing revenue opportunities and limited co-operative financing hurts deployment.

You can view the twitter conversation here- (https://twitter.com/iPolicy/status/587764879785795584)
He has also written an eloquent piece on the same - Net Neutrality in India: Missionary Zeal v. Zero-Rating quoting from Swami Vivekananda’s speech in the Parliament on World Religions in Chicago in 1893.
- (http://hightechforum.org/net-neutrality-in-india-missionary-zeal-v-zero-rating/ )

Moreover, when these comedians talk about freedom, just like the rest of the internet revolutionaries, they should realise that to augment their freedom to choose, they are diminishing the freedom of the Telecom Service Providers on gunpoint- through regulation. I’m yet to find an instance where Excessive Regulation of this sort has augmented the society’s freedom on the whole.

And they then say- ‘It is about the Future as Internet is a utility and not a luxury .And they give the example of other countries where net neutrality is ‘implemented’
   - USA, Brazil, Chile, Netherlands .’ just after speaking about equality.

Prof Daniel Lyons has documented how the Net Neutrality laws in Chile are widening the Digital Divide in this nation and forcing consumers to cough up more for less data and ultimately resulting in less data usage by the poor as well as the possibility of decreasing the number of low- income consumers due to unaffordability. All in the name of equality !!
(http://www.techpolicydaily.com/communications/chile-net-neutrality-widens-digital-divide/ )

Something similar is happening in Europe too-
‘Supporters have tried to paint net neutrality as a fight to stop the two-tiered internet.  But net neutrality can only guarantee one thing: all internet experiences are equal and dismally sub-optimal.  That is, net neutrality ensures that the lowest common denominator becomes the standard for all internet service.’
http://www.techpolicydaily.com/communications/eus-roaming-net-neutrality-vote-puts-path-digital-crisis/#sthash.meaBVOm1.dpuf

And Utility style governance of Networks in Europe has ensured this -
‘A decade ago, the EU accounted for one-third of the world’s investment in communication networks. That amount has plummeted to less than one-fifth today.  Many parts of the EU are woefully behind in next generation networks. New entrants take the easy path to lease existing networks, and established operators are reluctant to invest because they have to share their infrastructure with competitors. –‘
So how can Net Neutrality achieve equality? By making it unaffordable for the most poor to access the internet, by increasing the digital divide, By making the Internet Experience- in terms of speed, access, choice and price equally sub-optimal ? Great way to achieve Digital India aint it?

Price discrimination by the ISPs and TSPs are extremely beneficial and I will point out how -
1) It will help those consumers who don’t use VOIP and don’t watch a lot of you- tube pay less, thus increasing their surplus as well as enable them to spend more on normal data plans and use a lot more non- VOIP/Video data than usual at much lower rates.
2) You will find VOIP and Youtube like services innovating to better compress data to enable their consumers to use more of it, as price discrimination would be in play. The different, higher price is in itself an incentive for such players to innovate as their advertising revenues depends on the number of users accessing such sites as well as them finding it economical to do so.
3) You wont find such services excessively priced as the telecom sector in India is a highly competive sector and competition will ensure that prices are the lowest possible. Moreover, the TRAI is there for nudging TSPs/ISPs to reduce these prices too.
4) AIB’s example vastly exaggerated the impact. The TSPs/ ISPs at most will bundle services in such a way that the user is able to easily understand as they don’t want to lose revenues too. So you may have to pay extra for Social Networks in general and not Instagram or Snapchat in general. Video Players in general and not Youtube and Vimeo in particular. Some players may decide not to bundle at all as they would want to use the fact that they don’t bundle in marketing their services.
5) If bundling happens, the base prices will come down by a significant extant as here too competition will take place. And here too there will be price discrimination in terms of size of the pack.

Innovation in the Present and Near Future :-

The most common argument in favour of net- neutrality regulation is that it hinders innovation and it will enable Telecom Companies to pick winners and make losers out of good products. This is a bogus argument and I will explain why (with the help of Robert Kahn)-

1. Telecom Service Providers don’t have that much Market Power to exercise in the first place. They need all the help they can get to hold on to their existing subscriber base. If the user finds the internet experience better in some other TSP/ISP, they will shift there.

2. Consumers, once they get a taste of choice wouldn’t not exercise their ‘Information Advantage’ and therefore would take a look at both the free services provided through zero-rating as well as the ones that are not free to use.
The New subscribers once they are signed on through Zero-Rating will slowly gain this ‘information advantage’ and wouldn’t want to be penny-wise pound foolish by using only those internet services offered through zero-rating.

3. "If the goal is to encourage people to build new capabilities, then the party that takes the lead is probably only going to have it on their net to start with and it's not going to be on anyone else's net. You want to incentivize people to innovate, and they're going to innovate on their own nets or a few other nets," "I am totally opposed to mandating that nothing interesting can happen inside the net," So called "Neutrality" legislation posed more of a danger than fragmentation – Robert Kahn.
(http://www.theregister.co.uk/2007/01/18/kahn_net_neutrality_warning/?mt=1429030817614.)


Solutions-

The debate has been won by Pro- Net Neutrality Internet Revolutionaries by framing it on their terms. The term itself sounds so egalitarian like @righteconomist suggested on twitter- Garibi Hatao, Secularism .Most want to be on the right side of the argument and hence many start hash tagging Net Neutrality without knowing the difference between price- discrimination and throttling.

The same people (mis)guided by the likes of Mahesh Murthy on the internet have shifted the debate so far to the left that it is increasingly becoming difficult to indulge a dose of sanity into the debate.

Solutions to this conundrum are fairly simple
1) Decrease Regulation for TSPs at the same time don’t think about imposing any such regulation on OTT service providers.
2) To allay some concerns of these Internet Revolutionaries, mandate Zero- Rating platforms to be opened to all those ready to pay and qualify for a minimal set of specifications. This rule has to be temporary though.
3) Encourage Best-Efforts Network Management by TSPs/ISPs through moral suasion.
4) Redesign the spectrum allocation process to enable better competition and resource allocation as well as reduce inefficiencies in the process.
5) Privatize BSNL. It is an extremely inefficient user of spectrum and other infrastructure and acts as a poison pill to the entire sector thereby burdening both consumers as well as TSPs.


Conclusion -

 Net Neutrality Regulation is an extremely dangerous concept and the need for Net Neutrality Regulation is as much as the need was for Rahul Gandhi to return to India. This assault by Net Neutrality activists on freedom and property is immoral and counterproductive.

Heed Swami Vivekanada’s advice – ‘They ask us for bread, but we give them stones. It is an insult to a starving people to offer them religion; it is an insult to a starving man to teach him metaphysics.’

The poor Indian aspires to be digitally connected. They ask for cheaper Internet. Don’t give them stones. It is an insult to these people that you dare to offer them your religion (Net Neutrality). Keep your Net Neutrality-metaphysics with yourselves and allow these people to have internet. (I thank Richard Bennet for this )
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