Why was vsnl privatised

VSNL was given the most favoured customer status for a period of two years, but at market rates. Including the earlier withdrawal, the government received Rs 3, crore for disinvested equity of 25 per cent held in VSNL.

The other distortion - Indians made less calls in comparison to the calls received, for example, million minutes outgoing calls to 2, incoming, in In public ownership, the company could also not finalise any investment plans and reserves kept lying in banks. Who are the winners and losers? The company made huge profits earlier - Rs 1, crore in on a net block of Rs 1, crore.

This is happening. The turnaround of decisions in the company is now much quicker. De-regulation offers the company opportunity to diversify. They would clearly win in the long run. Inevitably, tax-payers, investors, consumers and the economy have gained. In addition VSNL was made to pay out a special dividend of per cent, which gave the government Rs. Add to this the Rs. That is, without resorting to strategic sale the government could not only have retained control of a profitable telecom major like VSNL, but could have through its own investments integrated with the consumer.

With hindsight, the government's decision not to give VSNL a basic services licence was a way of preventing it from exercising this option, perhaps forged by the decision to hand the firm over to the private sector.

Using inter-corporate investment as a means to ensure corporate control at low cost is a technique which is used the world over and has been especially common in India, where the representative unit of large capital is not a single giant corporation, but a business group. However, such investments are financed from the group's own kitty, making it a legitimate beneficiary of any the value enhancement that accrues to shareholders as a result of expansion and diversification into new areas.

What the specific history of VSNL shows is that privatisation makes it possible to make such investments and garner those gains with public money. The VSNL board's decision has not just allowed the Tatas to use the inter-corporate investment-for-control technique, but to do so with reserves accumulated by an acquired company prior to acquisition. This reduces costs of control further. It had paid out another Rs. But in the process it gained control of that part of the accumulated reserves of VSNL, which the government had not siphoned out prior to disinvestments.

As a result, it has, in the first instance been able to convert Rs. Another way of looking at it would be to say that, since the group has access to Rs. May 31st , C. Lacking access to such spaces for plunder or markets to denude, capital in ex-colonial, late industrialising societies had to rely on the state as a means to undertake such accumulation at the expense of the rest of the population.

In the past, Indian capital has indeed used its influence on government to obtain protection and favours of a kind that allowed them to accumulate surpluses with little effort and at small expense.

This was attributed by advocates of liberalisation to the rent-seeking behaviour typical of regulated regimes, and decontrol and deregulation they argued would do away with such tendencies that promote inefficiency.

That is clearly wrong. The company also mishandled the investments in Tata Teleservices since the unilateral decision didn't go down well with the government and, combined with VSNL's refusal to see the writing on the wall and lower tariffs fast enough, this resulted in it losing a large part of BSNL and MTNL's international minutes. To the Tatas' credit, they changed focus quickly after the first few years, spending around a billion dollars to do so. Another Rs crore Rs 8. VSNL's broadband acquisition gave it 50, customers and the company has aggressive plans to set up Wimax-based broadband services by the end of the year.

The firm's dependence on the ultra-price sensitive voice traffic has declined from 85 per cent in to 65 per cent. By the end of the decade, this is projected to fall to 40 per cent, the enterprise business will grow to a similar size and broadband will make up the rest.