Guns or Butter

The first time I heard that phrase “Guns or Butter” was when I was in Standard Eleven.I have rarely heard that phrase later. It puts succinctly the dilemma that any country faces in rationing its limited resources. Now as I Google that for the blog I also realised that there are Board Games based on the theme – http://boardgamegeek.com/boardgame/18445/guns-or-butter

I was reminded of this phrase because of this thought – Did India need the Telecom revolution and what was the real impact of this revolution. On the face of it, the telecom revolution has been a Private Sector initiative. Government has not invested much. On the other hand sold Spectrum – nature’s bounty like so many other resources – and got lot of money.

Was it completely a private sector initiative? Was there no Bank Borrowings? My understanding is that it should run into several thousands of crores. A substantial portion of the 3G auction also seems to be funded by banks.   There has been several advantages that this revolution has brought about. A simple one – but for that revolution you would not be able to read this blog. My employers have used Teleconferences to the hilt. That way Telecom revolution has saved a lot on fossil fuel. Communication has become easier. Knowledge and information easily accessible. I have reaped lots of benefits from the Internet – personal, official and certainly hope to continue to reap further benefits. There has been downsides also. Hours spent on the internet browsing sites I rarely remember now or playing Farmville. Hours have stretched into days, weeks months and now years. Time that could have been spent usefully. Incidentally I am on level 91 on farmville (and I also manage both my sons’ farms where I have reached level 47 & 42).

Had I put in that effort into a real garden I could have contributed my bit to the world. That in essence is the problem with this Telecom revolution. We think communication costs have come down. Has it? When i look back I realise that my expense on communication has gone up 2 – 3 times over the last 20 years. My income has gone up by around 10 times over the same period. So I feel better off. But look at it from the context of Governmental priorities. Guns or Butter? Telecom or say Medical Infrastructure? More cement factories? More Pharma companies?  Better Infrastructure for Agriculture? Where is the discussion?

If you think the Telecom Revolution has been a private sector initiative, read the following articles. They are just a sample.

On a day when the Supreme Court suggested the Central Bureau of Investigation (CBI) could also consider looking into loans amounting to around Rs. 10,000 crore taken by telcos given second-generation (2G) telecom licences in 2008, by pledging those very same licences, the federal investigating agency carried out searches at the homes of former telecom minister A. Raja and his aides.

SBI, which gave Rs. 14,000 crore in loans to winners of 2G licences in 2008, has made it mandatory for telecom companies to submit a utilization plan, a repayment schedule and details of their service rollout.

There is an internal inconsistency (first article talks of Rs. 10 k crore by complete sector while second talks of Rs 14 K by SBI alone) though both are from Mint. But that is understandable as more probe reveals better data. But more importantly the words *pledging those very licences* reveals the Catch 22 that the Government is caught in. The Private players took money from the Banks (an arm of Government) paid it to the Government, took the licences. Atleast if the money was with the Banks they could have lent it to Industries, Jobs would have been created, Goods that you and I need for  survival, better living produced. But now the Government will fritter away under the specious claim that it came free thanks to the Telecom Revolution.

You and I will pay for it by spending more time on Cell phones, Internet. There is a huge loan running into several thousand crores to be repaid. (SBI to new 2G licencees itself is Rs. 14,000 crores).

But imagine what a small portion of that money could have done to alleviate the pains of your neighbourhood.

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3 thoughts on “Guns or Butter

  1. Hi Sridhar : nice post. I did not understand one thing, though. If a telecom company borrowed money from, say, SBl, I have a tough time thinking of it as govt. funding. To me, that’s simply a choice of debt vs. equity. The govt. has some norms (?) about how SBI can deploy their assets, no? also, anytime we talk about resource allocation , particularly in a country like India, it is a very tough call because we can always ask questions like: how can we justify investing in, say, space programs and in ISRO when we have so much poverty?

    • Dear Shankar,

      Would take your Question in 2 parts. First, would Bank Funding be Government Funding and Resource Allocation in a Poor Country. Will give a quick response and may be a complete post on each as I think those are very relevant points you raised.

      First your point on Debt Equity can be taken at face value for say a car or even machinery for which I generally advise everyone to borrow rather than invest. But then even for machinery,in case of a factory, what happens is Banks will not lend for purchase of land. The land has to be in place. But in case of license I would assume lending is a policy mistake. For the moment i am assuming the transactions are above board as i want to limit myself to the economics rather than legality or otherwise which many are doing. To operate the license, the company has to invest heavily in infrastructure. If the company cannot fund the license (the equivalent of land in a factory) does it deserve to be in the market? I am only trying to raise questions? Obviously the readers views would be divergent. But I would be happy if these are discussed. May be I should have used Public Money instead of Government’s money. 🙂

      On the second point of Resource Allocation, I am not trying to be Ultra leftist saying that Government should first fund all Welfare programs and only then look at investment. Every development has its spin offs. May be worth it may not be. But then my view is that the Telecom Revolution had gone beyond the stage where Government needed to fund it. Look at my next post *The Machine that changed the world*. Can the Telecom Industry ever contribute as much as the Automobile Industry has contributed. And what was the Government’s investment in that?

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