Penny wise pound foolish at PSUs

A couple of months back, an uncle who works for a PSU in a reasonably senior engineering role, had to go to Calcutta on work. Thanks to his late arrival from Calcutta, we had to postpone a party that had been planned for a weekend. When I asked about his late arrival, I was told that his train had been delayed. It was then that it struck me – that a lot of PSU officers still do business trips by train!

The logic completely defies me. An airconditioned train ticket (at my uncle’s grade, I don’t think they would send him by cattle class) from Bangalore to Calcutta costs around Rs. 2000, and it takes about thirty six hours. A flight, on the other hand, costs not more than Rs. 7000 (assuming you’re not booking at the last minute), and takes about three hours. What amazes me is that the PSU that employs my uncle values his time at less than (7000-2000)/(36-3)  ~= Rs. 150 per hour! Ok even if you assume that the train journey had two nights when he would have been unproductive (and assuming that he’s a superman and so doesn’t need to rest and recover from a long journey), his employer values his one full day of work at Rs. 5000!

While this valuation might be consistent with my uncle’s salary (I’m only guessing given his experience and position; I haven’t asked), I think it’s still a stupid choice to make on behalf of the PSU. I was reading an op-ed by Mihir S Sharma in this morning’s Business Standard, where he talks about our warped sense of “austerity”, and was wondering if this decision to send my uncle to Calcutta by train was a measure in a similar direction!

Austerity means cutting down or limiting wasteful expenditure. It does NOT mean cutting down tangible expenditure in favour of the intangible (my uncle’s lost working time is an intangible, since he gets paid monthly; so is his reduced efficiency on the day immediately after his journey). Unfortunately some of the PSUs have not recognized this and still stick to some age-old “policies” regarding travel and expenditures.

My wife, who works for Toyota, informs me that a certain number of cars produced every day are “specially made for the government”. When I ask her what is so special about a sarkari car (apart from that rhino-horn like thing on the bonnet) she tells me that they are not supposed to have air conditioning! Given that air conditioning is a default in most cars nowadays, this “no air conditioning” is a special request that the government has to make to the manufacturers, so I don’t think it makes any tangible difference in the cost of the car. From my experience with my Zen, driving with and without air conditioning (I live in Bangalore, so I don’t need it at all times), I know that air conditioning hardly makes much of a difference to the mileage of the car. So overall in terms of cost, there is little the government saves by not having air conditioning in the car.

Now think of the babu in Delhi, where summer temperatures go well into the forties, and which is so dusty at all times of the year. Think of the possible increase in his efficiency if he were to travel in an air conditioned car. That is an intangible and the government will have none of it. It is all about austerity, you know. Penny wise, pound foolish.

PS: The recent focus on corruption has done more harm than good. Afraid of “being pulled up” by the CAG or any similar authority, a number of PSUs have gone into policy paralysis, and are simply not taking decisions, lest they are accused of being corrupt. The economic loss (again intangible) is humongous compared to the amounts these people might have possible swindled had they made the decisions! We never learn.

The problem with private provisioning of public goods

… is that private players who are providing those goods have an incentive in blocking attempts by the public sector to provide those goods. For the purpose of analysis, let us take the example of Gurgaon, both because I’m reasonably familiar with it and because it has been in the news in the international media thanks to a recent profile of the city by the New York Times.

Now, Gurgaon has a major problem with power supply. It is said that (I don’t have first hand info for reasons you’ll soon understand) the “city” faces about four to six hours of regular power cuts every day. I don’t know the exact reasons for it (surprisingly, Haryana sells power to other states so it appears there is no power deficit per se in the state), but it could be a pricing issue, with free power for farmers and all that. Anyway, the reason for the power cuts doesn’t matter so much.

In reaction to this, apartment societies have taken it upon themselves to provide “power backup” to the residents (for a fee of course). Even in that, there are three grades. I used to live in a DLF complex that had “one hundred per cent power backup”, which meant that I was assured of 24/7 power supply. Every time there was a power cut, the generators would start in a matter of a few seconds, and with “one hundred percent backup”, I could run just about any device on the “backup” power supply. In return, I would pay the apartment association six rupees per unit (as opposed to 3 rupees I pay here for sarkari power in Bangalore).

Then, there as “eighty percent backup”, in which you could use the generator-power supply to run all appliances except air-conditioners and geysers (both extremely important in Gurgaon given the weather). Then, there was another level with fifty percent backup, though I didn’t particularly understand it. The individual houses in the city, though, had no backup, and people living there had to make do with inverters.

Now, suppose that magically Haryana were to become a power surplus state, would the state government be able to provide uninterrupted three phase power supply to Gurgaon? I would think not, for there are several “private players” in that city whose source of profits and wealth is derived from the fact that they provide backup power supply. Think of all those people who invested in DLF flats because they had “one hundred percent power backup”. Now, with power backup not being a distinguishing factor, these flats will lose in value since they cannot command the same kind of premium as they used to (rather, the supply of “apartments with assured power supply” goes up, thus reducing demand for the only ones that offered this luxury earlier). Then, there are scores of generator and inverter dealers in Gurgaon, who again depend on the power shortage for their livelihood. And so forth.

It doesn’t appear as if Haryana has power shortage any more (recently, Karnataka bought power from that state to tide over its power crisis). However, there are enough powerful lobbies in Gurgaon who depend on power cuts (!! ) for their income and wealth, and it appears they have managed to lobby the government there (officially or unofficially) to block the provision of assured power supply. The moral of this story is that once “public goods” start being provided by private players, it is hard to displace them, and this results in a lifetime of inefficiency.


So next Saturday Shivamma, my aunt’s full-time maid, is going all the way back to her village near Challakere (Chitradurga district, Karnataka; six hours away from Bangalore) just to cast her vote in the Gram Panchayat (village council) elections.

My aunt can’t let go of her for more than a day but Shivamma’s relatives are really insistent that she exercises her franchise. They say that her visit to the village would be worth it even if she won’t be able to spend much time there apart from casting her vote!

Shows how much every single vote matters when the number of voters is low!