When it helps to forego

Over the last two months, Reliance Industries has realised that selling gas can be tougher than finding it. Never mind the fact we live in an era of crippling shortages—amounting to as much as half the prevailing demand.

Last week, the clouds cleared and RIL got the government’s nod to sew up consumers. But, not before it got a serious scare from a section of the government that pushed for artificially low prices to enable supply of cheap electricity and fertiliser to consumers—a reaffirmation that politicians hardly ever miss an opportunity to indulge in populism.

Cut to the telecom sector. Thanks to the telecom revolution, the mobile phone has become a mass consumption product, in the same league as electricity, fertiliser, petrol or diesel. Yet, there has been hardly any political interference to curb the revolution, driven significantly by the private sector.

But now, there could well be a case for such an indulgence— ironically, one that will benefit the industry. The issue: allocation of 3G spectrum. Here, the regulator TRAI has recommended to the government that it should auction the air waves. This, since it is a finite resource, with demand outstripping supply, and since this new generation of mobile telephony soaks up more of the limited resource than the prevailing 2G system.

This process will undoubtedly put the 3G service well beyond the affordability of rural India. But surely, it will enrich the exchequer and provide funds for development activity in rural India. However, rural India will be better off accessing this service, using it as a tool for education and commerce. Yes, today, price is a barrier to mass consumption. Currently, popular usage is in the realms of streaming videos, video conferencing, gaming, navigational aid, among others—all in the urban fold.

In this backdrop, an auction process will only drive up the consumer price. And, to this extent, the service providers will have no incentive in reaching out to rural India.

The proposition becomes even more difficult since the rural-urban divide extends as much into education as the economy. By foregoing revenues, the government will provide for greater inclusive growth in the country. At the same time, for the industry, this will allow it to charge lower tariffs. This will wedge open the rural market that will provide economy of scales—a strategy that has allowed your chauffeur and maid to use mobile phones, yet ensured that the mobile telephony business is a profitable one.

So, how then is the flavour of populism in the RIL deal any different? After all, the government is foregoing a part of its profit share from the gas fields to ensure lower prices of electricity and fertilisers.

The difference is that the lower prices do not wedge open new markets and affordability issues are not keeping consumers away.