Inevitably, the sentiment, markets and financial indicators tanked after the Fifth July Budget. A concerned Modi tried to ‘talk up’ the economy by feting ‘wealth creators’ in his Independence Day speech, but it fell on deaf years. The markets continued to plummet.
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[00:00:00] Rise Above the Din, Unbox the News with me, Raghav Behal Finally, after what has seemed like an eternal weight of five years and six months, Five years and six months, Bodhi Nomek seems to be finally trusting private enterprise and competitive markets.
[00:00:18] On 20th of November, Finance Minister Nirmala Sitaraman announced three initiatives. Privatization, I'll say it again. Privatization, not disinvestment. Privatization of BPCL, Concord and shipping corporation.
[00:00:35] The second one, moratorium on spectrum charges and you know that sort of provided a very required cash flow relief to telecom companies which were beleaguered. And it actually could have saved India from the ignominy of a bankruptcy filing by at least one global title.
[00:00:52] And the third one, Supercession of the DHFL Board with an implied promise that the devastation that was caused when ILFS went bankrupt. That kind of devastation is going to be avoided. But wait then what's this Babu-Jaal? Babu-Jaal, it's actually a dangerous acronym which is constructed as follows.
[00:01:19] The first B stands for BPCL. The second B means BSNL. JA stands for Jet Airways. L stands for Leasing the sort of common letter in ILFS and DHFL. Confused? You must be, can't quite figure it out. Well let me explain. You know it's been my perennial fear.
[00:01:43] Actually it's a phobia, it's not a fear, it's a phobia. I'll admit that. That whenever any political leadership gathers the courage to launch pro-market policies, India's you know this control freak bureaucracy, it just comes in and it trusses up that idea,
[00:02:00] it trusses up that policy in very impossible to navigate cobwebs, JAAL cobwebs. And that sort of effectively kills the doctrine. Let me show you how these Babu-Jaal conspiracies could play out. Let's look first at BPCL. You know that could be forced to go the HPCL or GSPC way.
[00:02:25] You know the BPCL privatization is perhaps the most audacious market friendly initiative by Prime Minister Modi in five and a half years. But unfortunately a few blind spots could be there which could swallow this whole effort.
[00:02:42] You know the Numali girl refinery will have to be demurged out of BPCL and it'll be sold to another public sector company perhaps Oil India or Indian Oil. Now inevitably this exercise will take time since it shall involve a third party valuation
[00:03:00] and that'll be followed by you know there's a fairly complex corporate process by which you can extract an asset like Numali girl refinery from BPCL's balance sheet. Now if BPCL is not sold for about 70,000 crore rupees in this financial year that's
[00:03:17] before the 31st of March 2020 the government could miss its disinvestment target of 1.05 lakh crore and they could miss this by a mile and that could cause an embarrassing fiscal slippage. So now you get how the Babu Jal will be spread.
[00:03:38] The establishment will say let's do the tried and trusted trick. Let's do what we did with HPCL and GSPC you know which were forced down ONGC's throat. Let's therefore shove BPCL also down IOC's gullet this time.
[00:03:55] We will you know account for 70,000 crore in you know what they call disinvestment but actually it's a transfer from government to government it's not a disinvestment not a genuine disinvestment but they'll call it a disinvestment. The fiscal target will be met and BPCL will stay in public hands.
[00:04:11] Now there you go again how a terrific idea will be caught and choked in the Babu Jal which is in the bureaucratic cobwebs. Please Prime Minister Modi please Finance Minister Sitaraman do ensure please do ensure that it
[00:04:28] is a genuine third party privatization even if you have to defer the sale to next year even if the fiscal deficit slips a bit. If anything you should actually you know perhaps nix the 70,000 crores that you
[00:04:43] promised to infuse in the BSNL MTNL merger that's a comatose thing that's a dead thing you can nix that and if you nix that then you can neutralize this delay. Now let me show you one more way in which this Babu Jal will operate.
[00:04:59] You know recall ILFS and Jet Airways as you take on DHFL I mean I was thrilled when the Reserve Bank of India proactively superseded DHFL's board and they appoint a seasoned professional to take charge unfortunately I'm sensing a Babu Jal that's bureaucratic cobwebs here too.
[00:05:20] The fear is that the insolvency and bankruptcy code will be invoked and that will force lenders to take a write down and that in turn will gum up the credit markets yet again and what's the worst the worst thing possible
[00:05:36] is that DHFL could close shop and that'll be a bizarre action replay of what happened to ILFS and to Jet Airways. I would again like to beseech Prime Minister Modi beseech Prime Minister Modi and Finance Minister Sitaraman please do whatever you need to provide whatever
[00:05:57] liquidity is required but do ensure that DHFL remains a solvent going concern that the asset is salvaged. Finally the third thing where the Babu Jal could come in play we turn to the cash flow relief to Vodafone and Airtel via the two-year moratorium
[00:06:16] on spectrum charges. Now it's a relatively tiny but very welcome concession although once again the Babu Jal is pretty starkly visible here too there has been no attempt to correct the definition of adjusted gross revenue which in my humble opinion, my very humble opinion and with very great
[00:06:43] deference to the Honourable Supreme Court in my opinion that definition is utterly flawed. Can you imagine you pay spectrum charges on foreign exchange gains and losses foreign exchange gains and losses I mean as the dollar moves up and down against the rupee
[00:06:59] the spectrum liability the spectrum licensing liability it also yojos with it I mean this is all wrong arithmetically economically commercially it's can it get more more specious or suspicious or even frankly surreal so in the end I can only repeat what I said at the very beginning
[00:07:21] these policy reforms are sensible they are dramatic they are strong but you need to protect them against the Babu Jal that's the bureaucratic cobwebs thanks for listening tune in next week for another episode of Raghav's Tick