Privatization in disguise

 

Privatization is not just when the government sells Air India to Tata. Privatization can be possible by various means. When citizens are nudge or forced to shift towards private player services from public player services is also privatization.

We generally consider these headlines as Privatization. 

But, Here I like to discuss the mode of privatization which rarely comes into discussion. I can give you a guarantee that you have not read anything like this yet on privatization. I explain two sectors, One is Gas distribution and second is transportation. 

Privatization in disguise in the Gas distribution sector

 

There are two types of Gas distribution networks. One is LPG distribution which is in hands of the Three government agencies- IOCL, HP, and BP. The second is PNG ( Piped natural gas) where private players exist and one is the dominant name that is Adani gas.

I alleged that Government trying to push the citizen towards the PNG gas which is dominated by private players from the current LPG which is dominated by Public agencies. Here is how.

Government reducing the LPG subsidy month by month for the last 24-36 months. The Result is there are Zero subsidies on LPG cylinders today. Here is the graph of that.

 

The Same reflect in the Budget of the LPG subsidy also

Now, the question arises is that why is the government doing this? The answer is it creates a win-win situation for government and private players. It reduced the fiscal burden of the government and also make the PNG of the private players more competitive.

Let's do some scientific analysis to understand this fiscal issue:-

• 1 LPG Cylinder = 14.5 KG gas = 1,66,750 kcal = Rs.850
• 1 MMBTU PNG gas = 2,52,000 kcal = Rs.777 ( Including VAT)

It Means, The Cost per 1,00,000kcal is:-

• For LPG = Rs.512
• For PNG = Rs. 308

Furthermore, let add the third dimension to the analysis. From the Graph of the Hindu, it is clear that the price of the LPG cylinder was Rs.400 in January 2015. If the price remains the same today then,

The Cost per 1,00,000kcal is:-

• For LPG (Today) = Rs.512
• For LPG ( If price were same as 2015) = Rs.240
• For PNG = Rs. 308

From this, it is clear that the PNG is affordable and attractive to customers only when the LPG is not subsidized. Hope you understand the game now. If yet not, please check the graph below.

So, Privatization in disguise is that the government pushing the citizen towards private PNG gas by cutting down the LPG subsidy.

 

Privatization in disguise in the transportation sector

Likewise Gas distribution, Here the government pushing the citizen towards private airlines from the public railways. Here is how.

It is a well-known fact that the railway's transport in India is highly subsidized.  For every one rupee earned in its passenger business, Indian Railways ended up spending Rs 1.82. It means The government spends Rs82 for each citizen ticket of Rs.100.

To create a win-win situation for the government and private airline sector (Not for citizens), the Government introduced the Flexi fare tariff in certain Rajdhani and Shatabdi trains. Here the tariff of ticket increase with the increase in the booking. It works similar to the Surge pricing of the old uber.

Here is my research paper on the Flexi fare, You can refer to it for more details. Click Here to Read

It is not just me but CAG notes in their report that it pushing the traffic to the Airlines sector from the Railways. Report No.5 of 2018 - Compliance Audit on Union Government (Railways) year ended March 2017" notes -

[ A comparison with airfare for different Advance Reservation Periods in 13 sectors also showed that airfares were cheaper than the respective train fares for a large number of routes/sectors. When compared to the cost and time taken for travel by Premier trains, airfare became a cheaper and preferable mode of travel.]

For the citizens and Railways, Flexi fare does not make sense, Citizen have to pay more price of the ticket at the same time many seats in railways remain vacated. CAG noted

[ In terms of absolute numbers, the Premier trains carried 2,40,79,899 passengers during post flexi period as compared to 2,47,36,469 passengers during pre-flexi period. There was de-growth of 2.65 per cent despite the availability of a higher number of berths/seats, which resulting in sub-optimal utilisation of national assets. Railway, however, earned ` 552 crore from passenger earnings from the Premier trains post flexi fare system during 9 September 2016 to 31 July 2017.]

Let me explain what CAG said in their report in simple language with an Example

Pre-Flexi fare Era - Rajdhani 2nd AC tariff was Rs.2000 and Airline tariff was Rs.2500 for the Ahmedabad to Delhi. In this situation, Ramesh, Suresh, and Mahesh each spend Rs.2000 for the 2nd AC Rajdhani ticket. So, the flow of money would be...

• Citizen have to pay = Rs. 6,000
• Railways Revenue Generation = Rs.6000
• Private Airline Revenue Generation = 0

Now in the Flexi fare era- The tariff of the Rajdhani is Rs.2000 for Ramesh, Rs.2300 for the Suresh, and Rs.2700 for the Mahesh while Air tariff remains the Same Rs.2500. So, It is natural that Mahesh opts for the airline rather than the Rajdhani train. So the scenario will be...

• Citizens have to pay = Rs. 7000
• Railways Revenue Generation = Rs. 4300
• Private Airine Revenue Generation = 2700

From this, It is clear that the government trying to nudge/push citizens to travel in airlines rather than Railways.

Privatization is happening at various levels and in various layers. What we need to do is to keep micro views on the government policies.