The GOVERNANCE blog

Governance: An international journal of policy, administration and institutions

Colonial legacies: A reply to Richard French

Sunila Kale and Rahul Mukherji published their commentary How Colonial Legacies Still Shape Indian Governance: Power and Telecommunications in Comparison in the January 2013 issue of Governance.  Richard D. French of the University of Ottawa has written a response to the commentary.  Here, Mukherji and Kale reply to French.

By Rahul Mukherji and Sunila Kale.  Richard French’s rejoinder to How Colonial Legacies Still Shape Indian Governance faults our commentary in Governance for not being sensitive to what we consider two significant issues in the governance of Indian telecommunications and power. First, French argues that state-level federal politics and populism rather than the legacy of the power sector’s being a part of the concurrent list of the Indian constitution should be blamed for the dismal state of electricity generation and revenue realization in the sector. In his words: “Blaming the Indian power disaster on imperial influence is like blaming illiteracy on Gutenberg.”  Second, French suggests that we have downplayed the muddled and chaotic path of telecommunications regulation in India, a process that has been especially debilitating for foreign investors. French’s provocative rejoinder is an excellent opportunity to clarify and elaborate issues that were constrained by the space allocated to an commentary.

It is unfair to conclude that we have laid all the blame of malgovernance on colonial legacy. Our objective was not to bash colonial rule. If the colonial legacy of decentralization impeded electricity regulation then the same logic would suggest that it has helped telecommunications, which benefited from a history of centralized governance. Our previous and forthcoming published work shows that central politicians and administrators were keenly aware of the constraints that state-level governance would impose on the power sector, but a variety of factors, including vested interests at the provincial level, prevented any jurisdictional changes (Kale, Forthcoming 2013).

Moreover we are in agreement with French that there are many serious challenges to governance in the power sector, including consumer subsidies. The difficulty of regulation in the face of such populism only strengthens our contention that it would have been easier to regulate the sector from the center. Comparing power with telecoms, a chief executive officer of a centrally governed government telecom utility once observed that everyone paid telecom bills in India.

Likewise, we are aware that telecommunications regulation has been a muddled process. Our published work has demonstrated how bidding procedures were rigged in favor of government utilities in 1994, and that the sector was faced with a judicial log jam in the absence of a regulator in 1996 (Mukherji, 2008, 2009, 2011). Two years later a competent but powerless regulator could not deal with the power of government-owned incumbent companies. It was only in 2000 that the government enhanced the powers of the Telecom Regulatory Authority of India and established a Telecom Disputes Settlement Appellate Tribunal. Even after this important step, Reliance Infocomm was on the verge of regulatory capture by acquiring cheap wireless licenses in local loop (WLL) CDMA technology in the name of promoting rural telephony.

Foreign investment in telecommunications was viewed more favorably only after a particular minister decided to favor a competent operator that needed the injection of foreign funds after 2004. More recently, the telecommunications minister A. Raja was behind bars for the manner in which he conducted the auction of 2G licenses in January 2008. Our editorial provides a flavor of this recent history, all of which is covered extensively in press and academic accounts of Indian telecoms, but also points to the positive role of the Prime Minister’s Office and the Ministry of Finance in dealing with Department of Telecommunications, which is in our judgment a more overlooked feature of recent telecom history.

We also point out the varied successes in the Indian telecom sector.  Firstly, regulatory evolution was able to surmount the challenges of an adverse political environment with extensive rent-seeking propensities, to promote competition and engender some of the lowest tariffs in the world. Competition has driven down prices and by October 2012, the share of government companies has declined significantly to less than 12 per cent. India now has 904 million connections, with urban an teledensity rate of 153 per cent. The same figure for rural areas is 40 percent. The most efficient company Airtel enjoyed the largest market share (20.6 per cent) despite predatory moves by more cash rich companies. Its founder Sunil Mittal was not born into wealth. He exploited partnerships with Warburg Pincus and Sing Tel and dealt with regulatory challenges to remain on top.

To sum up, we are not wholly negative about colonial legacy but instead offer a more nuanced perspective. The historical legacy was positive in the case of telecommunications but not so in the case of power sector reforms. Empowering the states has exacerbated populist governance of the power sector and prevented the most efficient use of scarce capital resources. By contrast, chaotic regulation and instances of grand corruption notwithstanding, the telecom sector’s centralized regulation has benefited both corporates and consumers. Our brief comparative exercise is meant to show that institutional path dependence is important for understanding sectoral differences in policy-making in India.

REFERENCES

Mukherji, Rahul.  2011.  “Managing Competition,” in Rahul Mukherji, ed., India’s Economic Transition: The Politics of Reforms (New Delhi and New York: Oxford University Press), pp. 300-327.

Mukherji, Rahul.  2009.  “Interests, Wireless Technology and Institutional Change: From Government Monopoly to Regulated Competition in Indian Telecommunications,” Journal of Asian Studies 68.2, pp. 491-517.

Mukherji, Rahul.  2008.  “The Politics of Telecommunications Regulation in India: Explaining State – Industry Alliances Favoring Foreign Investment,” Journal of Development Studies 44.10, pp. 1405-1423.

Kale, Sunila.  Forthcoming 2013.  Electrifying India: Regional Politics of Development (Stanford University Press).

Written by Governance

January 11, 2013 at 9:30 am

Posted in Uncategorized

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