A Level Economics 54: Monopoly

Market failure arising from monopoly firms occurs due to the significant market power they possess, which allows them to restrict output, charge higher prices, and limit competition. This results in an inefficient allocation of resources and a loss of consumer welfare. Let's explore the market failures arising from monopoly firms:

1. Higher Prices and Reduced Output: Monopoly firms can set prices higher than their production costs due to the lack of competition. Since they are the sole providers of a particular good or service, consumers have no choice but to accept the higher prices. This leads to reduced consumer surplus, as consumers pay more for the product than they would in a competitive market.

   Example: A pharmaceutical company holds a patent for a life-saving drug. As the only producer, they can charge exorbitant prices, making it unaffordable for many patients in need.

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3. Inefficient Resource Allocation: Monopoly firms may not allocate resources efficiently to meet consumer demand. Their focus may be on maximizing profits rather than producing the optimal quantity of goods or services that align with consumer preferences.

   Example: A monopoly internet service provider may invest less in network expansion and improvements since they face limited competition. As a result, consumers may experience slower and unreliable internet services.

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5. Lack of Innovation: Monopoly firms may lack incentives for innovation and improvement since they face no pressure from competitors. Without competition, there is less motivation to invest in research and development or enhance products and services.

   Example: A monopoly operating in the telecommunications sector may not invest in new technologies or offer innovative services since they already dominate the market.

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7. Deadweight Loss: Deadweight loss refers to the welfare loss experienced by society when resources are not efficiently allocated. In a monopoly, deadweight loss arises due to the underproduction of goods and services compared to a competitive market.

   Example: A monopoly producing widgets may restrict output to maximize profits, leading to an inefficiently low quantity of widgets produced and consumed.

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9. Rent-Seeking Behavior: Monopoly firms may engage in rent-seeking behavior, using their market power to lobby for regulations and policies that protect their position. This diverts resources away from productive activities and undermines overall economic efficiency.

   Example: A monopoly energy company may lobby the government to impose regulations that limit competition from renewable energy sources, protecting its market dominance.

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11. Inequitable Distribution of Income: Monopoly profits may be concentrated in the hands of a few, exacerbating income inequality and wealth disparities in society.

    Example: A monopoly in the media industry may control multiple platforms and generate significant profits, contributing to media ownership concentration and limiting diversity of voices.

Government intervention through antitrust laws, regulations, and competition policies is crucial to address the market failures arising from monopoly firms. By promoting competition, governments can encourage innovation, ensure efficient resource allocation, protect consumer welfare, and foster a more equitable distribution of economic benefits.

Why do rich Indians migrate?

Lucky Dip

by Girish Menon

Shiv is in a bind

Got no more options

Throws the ball to the leggie

Abdul save me from my plight

What should I do skip?

Flight or darts?

The game will be lost

In a jiff or in time

Do what you please

Take a risk if you wish

Take the field that you want

Save me from my fate

I will be deposed

My record exposed

Personally divorced

Abdul, take the risk

You don't have to worry

It is my flutter

Just get me a winner

Abdul flights the ball

Six runs to win

Twelve balls to play

Three wickets left

The ball slips from his grip

Dips and hits a divot on the pitch

Shoots along the mud

Hits the batter on his foot

The ump raises his finger

The crowd is happy

The experts begin to rave

At the great bowling change

I still have some hope

My record intact

My family safe

The match is won soon after

The experts sing my praise

The cup is saved

I will remain captain again

  

Many wins follow

Folks call me the greatest

Skipper and tactician

That ever played

But if it was not for Abdul

And the divot on the pitch

Daily I’d be walking to Tesco

To buy a lucky dip.

Why scientists are losing the fight to communicate science to the public

Richard P Grant in The Guardian

A video did the rounds a couple of years ago, of some self-styled “skeptic” disagreeing – robustly, shall we say – with an anti-vaxxer. The speaker was roundly cheered by everyone sharing the video – he sure put that idiot in their place!

Scientists love to argue. Cutting through bullshit and getting to the truth of the matter is pretty much the job description. So it’s not really surprising scientists and science supporters frequently take on those who dabble in homeopathy, or deny anthropogenic climate change, or who oppose vaccinations or genetically modified food.

It makes sense. You’ve got a population that is – on the whole – not scientifically literate, and you want to persuade them that they should be doing a and b (but not c) so that they/you/their children can have a better life.

Brian Cox was at it last week, performing a “smackdown” on a climate change denier on the ABC’s Q&A discussion program. He brought graphs! Knockout blow.

Q&A smackdown: Brian Cox brings graphs to grapple with Malcolm Roberts

And yet … it leaves me cold. Is this really what science communication is about? Is this informing, changing minds, winning people over to a better, brighter future?

I doubt it somehow.

There are a couple of things here. And I don’t think it’s as simple as people rejecting science.

First, people don’t like being told what to do. This is part of what Michael Gove was driving at when he said people had had enough of experts. We rely on doctors and nurses to make us better, and on financial planners to help us invest. We expect scientists to research new cures for disease, or simply to find out how things work. We expect the government to try to do the best for most of the people most of the time, and weather forecasters to at least tell us what today was like even if they struggle with tomorrow.

But when these experts tell us how to live our lives – or even worse, what to think – something rebels. Especially when there is even the merest whiff of controversy or uncertainty. Back in your box, we say, and stick to what you’re good at.

We saw it in the recent referendum, we saw it when Dame Sally Davies said wine makes her think of breast cancer, and we saw it back in the late 1990s when the government of the time told people – who honestly, really wanted to do the best for their children – to shut up, stop asking questions and take the damn triple vaccine.

Which brings us to the second thing.

On the whole, I don’t think people who object to vaccines or GMOs are at heart anti-science. Some are, for sure, and these are the dangerous ones. But most people simply want to know that someone is listening, that someone is taking their worries seriously; that someone cares for them.

It’s more about who we are and our relationships than about what is right or true.

This is why, when you bring data to a TV show, you run the risk of appearing supercilious and judgemental. Even – especially – if you’re actually right.
People want to feel wanted and loved. That there is someone who will listen to them. To feel part of a family.

The physicist Sabine Hossenfelder gets this. Between contracts one time, she set up a “talk to a physicist” service. Fifty dollars gets you 20 minutes with a quantum physicist … who will listen to whatever crazy idea you have, and help you understand a little more about the world.

How many science communicators do you know who will take the time to listen to their audience? Who are willing to step outside their cosy little bubble and make an effort to reach people where they are, where they are confused and hurting; where they need?

Atul Gawande says scientists should assert “the true facts of good science” and expose the “bad science tactics that are being used to mislead people”. But that’s only part of the story, and is closing the barn door too late.

Because the charlatans have already recognised the need, and have built the communities that people crave. Tellingly, Gawande refers to the ‘scientific community’; and he’s absolutely right, there. Most science communication isn’t about persuading people; it’s self-affirmation for those already on the inside. Look at us, it says, aren’t we clever? We are exclusive, we are a gang, we are family.

That’s not communication. It’s not changing minds and it’s certainly not winning hearts and minds.

It’s tribalism.

Why we need in-game penalties for slow over rates

LIAM CROMAR in Cricinfo


If the paying public isn't to feel short-changed, administrators need to consider effective ways of disciplining teams

It's easy to dismiss complaints about slow over rates as the grumblings of a few non-representative malcontents. It's probably also true that many spectators are not bothered - at least not beyond brief shoulder-shrugging. Corruption, dead pitches, and (mis-) governance are certainly more pressing issues. Yet that isn't to say it's not a problem that shouldn't be fixed.

The way Tests are marketed works against spectators realising their loss. One is encouraged to buy a ticket for a day, not for the minimum number of overs scheduled for the day. The overs lost are almost imperceptible, unless one is keeping an eye on the progress. Even when overs are lost, the percentage of cricket reduced seems trivial. Three overs out of 90, the number that England failed to bowl on the first day at Lord's against Pakistan, is a mere 3.33%. Much ado about nothing?

A moment's consideration will, however, reveal the unacceptability of such short-changing. Would, for example, all in attendance at a football match be content if the players downed tools after 87 minutes? Would cinema-goers put up with the last four minutes of a two-hour film being chopped off? Would the audience applaud were an orchestra to pack up without playing the last few bars of the symphony?

Officially, 90 overs is a minimum, albeit more of a theoretical, aspirational minimum than a literal minimum. That it is well within the realms of possibility is highlighted by the fact that not only do recreational cricketers regularly fit 90 overs into an afternoon but also that it isn't completely unheard of for international teams to meet the target.

Six hours of 15 overs each should therefore not be viewed as too taxing, even without making use of the extra half-hour, which is supposedly a reserve, only to be used if needed. Unfortunately, it now appears that the extra time is viewed as an entitlement rather than an option to be used only in extremis. To run past the official close time may be regarded as a misfortune; to fail to complete the overs in the extra time should be regarded as carelessness.

Worse, it smacks of discourtesy. In much the same way that certain tins of chocolates appear to have quietly scaled down over the years, over rates are another example of almost invisible under-provision: the amount paid for the product stays the same, but less of the product is handed over.

To put some figures on this, take the example of England's 87 for 90 at Lord's. A top-price ticket cost £90, meaning one over held a value of £1. Therefore a ticket holder would have failed to see anything for three of the pounds that he or she handed over. Three pounds may not seem like a great deal, but it's not nothing. Not everyone at Lord's is a London high-flyer awash with cash.

Would all in attendance at a football match be content if the players downed tools after 87 minutes?

Now bear in mind 29,000 were at Lord's that day. Not all would have paid £90 - some tickets were down at £60, while some will have enjoyed hospitality in private boxes - so for purposes of argument, assume that the average ticket cost was £75, meaning the average "loss" would have equated to £2.50.

Naturally, no refund was offered; none is given if even a mere 25 overs have been bowled, 27.78% of the supposed minimum, yet again highlighting the flexible nature of the word "minimum". Twenty-nine thousand multiplied by £2.50 yields a collective loss of £72,500.

So much for the financial element. However, more is at stake. On the last ball of the 87th over, Pakistan had lost their sixth wicket. Three further overs, including one from the on-song Chris Woakes, would have been engrossing watching. Of course, it's not entirely correct to imagine the hypothetical overs as being added on to the end of the day; still, the more overs bowled during the day, the more chance of action for the spectators.

It would be impractical to force players to complete the overs regardless of conditions - playing in darkness would unfairly penalise the batting side - but if players are not going to be required to complete the scheduled overs even when conditions are suitable, then an effective way of policing it needs to be found, one that stands a chance of benefiting paying viewers.
The current system of policing over rates via the threats of forfeiting match fees, or in extreme cases, banning captains, leaves much to be desired. Suspending captains, while obviously more likely to concentrate the minds of the players, is liable to be gamed. During the World T20 in 2012, when Mahela Jayawardene was in danger of incurring a suspension, Kumar Sangakkara was named as the official captain against England. Yet it quickly became apparent that Jayawardene was still in command on the field.

Furthermore, suspending the captain perversely punishes the spectators at the next game, depriving them of seeing one of the team's best players, a point that has been made before. As far as match-fee fines go, while the threat of losing 20% of a £12,000 fee might be a significant restraint for mortals, it's hard to see how it would be anything but water off an England captain's back (water down the back being a common experience in that climate), and does nothing to compensate the ticket holders. In-game penalties, with immediate application, are the way forward.

It is curious that in England the form of the game that least suffers from running slightly overtime - T20 - is the one where teams incur the heaviest immediate penalty: six runs if the 20th over has not commenced after 75 minutes. This is despite the fact that, arguably, neither the batting side nor the spectators miss out. All the necessary overs will still be bowled. If only 114 balls are delivered before the 75-minute cut-off, rather than the required 115, the net effect is only to increase the average time taken for each delivery from 39.13 seconds to 39.47. It's hard to justify a claim that the intensity would appreciably suffer without such a constraint, although, in fairness, the introduction of the countdown clock adds an extra element of tension to a crowd-pleasing format.

Test match cricket needs such an in-game penalty much more than T20 does. A five-run penalty would be an obvious first step, but since five runs rarely makes much of a difference in a Test match, that appears too minor. Another possible approach would be to inflict a ten-over delay for the new ball - or, should the umpires determine that that would unduly benefit the fielding side, grant the batsmen ten overs with a ball of their choice: the old ball, a new ball, or an un-shined ball of comparable wear.

A more radical solution would be that should the over rate in one session drop below the threshold, one fielder is suspended for the following session, forcing the team to make do with ten men. Such a penalty would wonderfully focus the minds of the fielding team, especially if the suspended fielder turned out to be their strike bowler. While spectators would be momentarily deprived of seeing that player perform, they would be treated to the extra intrigue of the batting side attempting to capitalise on their temporary significant advantage - an 11.11% reduction in fielders, excluding the keeper and bowler - as they saw fit, quite possibly through higher scoring for that session.

Something similar could be arranged if the side at fault is batting in the next session. A player could be prevented from batting during that session, thus forcing a rejig of the batting order. If nine wickets were lost and one player was currently suspended, the team would be all out.

Whichever approach is considered preferable, it is time to make over rates an in-game rather than post-game issue, for the sake of the spectators. As a noted England skipper, of sorts, was once said to say after a humbling defeat: "I wasted time, and now doth time waste me." Were a few more captains to experience such sentiments, over rates and their associated debates might be relegated to the past.

Why Virat Kohli has to rid Indian cricket of bad habits

Suresh Menon on BBC website

In cricket, as in any sport, there are two kinds of mistakes.

The bad mistake arises out of confused thinking, lack of focus and a poor understanding of tactics. The good mistake, on the other hand, implies a well-thought out plan gone wrong or an attempt to force the issue backfiring.

Increasingly as his captaincy progressed, India's most experienced and successful Test captain Mahendra Singh Dhoni kept making bad mistakes. Giving his bowlers one-over spells, for instance. Or wasting a fielder at leg gully.

Good fortune and hunches can take you only so far - every captain in the game's history has taken chances with an inexplicable bowling change or an illogical batting line-up and surprised everybody by winning. But that cannot be the basis for captaincy.

Positive attitude

Virat Kohli, at 26, younger than Dhoni by seven years, is not yet tactically sound but has two important things going for him: a positive attitude and enormous self-belief.

Not since Tiger Pataudi has an Indian captain been willing to risk defeat in the pursuit of victory like Kohli in the December 2014 Adelaide Test against Australia.

The essential difference between the past and future of Indian cricket is that while Dhoni was clearly on his way down, Kohli can only improve.

He will face many of the problems Dhoni did - a poor bowling attack, especially abroad, the pressures of being on the field for beyond 50 overs or a single day, the hope that victories in the shorter format will make up for their absence in Tests.

India had caved in without a fight in 13 of 17 Tests abroad before the last Australian tour. They lost the 14th in Adelaide, where Kohli led for the first time, but the texture of the defeat was different. The Anna Karenina Principle applied. "All happy families are alike," wrote Tolstoy in his novel, "each unhappy family is unhappy in its own way."

Similarly, all victories are alike but defeats are wildly different.

Kohli is younger than Dhoni by seven years

India went down in a blaze of glory, attempting to make 364 runs in a day and coming startlingly close.

Playing for a draw was never an option, said Kohli, perhaps aware that India had the batting to win the Test, but not to draw it. Still, there was promise of a change in the standard narrative. Optimism is infectious, and it is easy to catch it off a captain who is full of it.

Kohli projected that optimism and spirit right from the days when he led India to the Under-19 World Cup win. He was marked out as future captain.

The IPL has a lot to answer for. But in Kohli's case, it actually helped.

Finding a balance

After initially tasting its many enticements, Kohli settled down. In his corner was his team Royal Challengers Bangalore coach Ray Jennings, who told him that the Under-19 triumph would soon be forgotten, and that he would be judged as an adult cricketer. Anil Kumble helped to channelise and focus all that energy. And he was made captain in anticipation of the bigger job to come.

While Kohli's captaincy in the one-day format has been aggressive and focused on winning, in Tests he will have to learn - as his bowlers too will - the virtues of patience and long-term planning.

Indian cricket will have to find a balance between Dhoni's tendency to let things drift and Kohli's impatience with uneventful overs and sessions. There is an element of fishing in the longer format. You put out your bait and wait. Kohli will have to learn the waiting game.

Whether it is a reflection of the times, a consequence of playing too many matches in the shorter formats of the game or a question of temperament, India's cricket is currently characterised by an impatience that makes them perform well below potential.

Bowlers are in a hurry to take wickets or simply run through their overs, batsmen seem to have forgotten how to play session-to-session. Kohli will have to rid the team of bad habits.

While many believe that a captain is only as good as his team, the best ones have inspired their teams to play above themselves. Pataudi for one, Mike Brearley or another.

Kohli's advantage is that he is the best batsman in the side, and there are no immediate candidates for his job. In other words, he will be left alone to develop his full potential as captain, unhampered by the need to constantly watch his back - an occupational hazard with Indian captains of the past.

He has it in him to stamp his name on an era.

Shoddy Science - Study showing that chocolate can help with weight loss was a trick

Kashmira Gander in The Independent

A journalist seeking to lay bare how the research behind fad diets can be “meaningless” and based on “terrible science”, has revealed how he tricked international media into believing that chocolate can aid weightloss.

Posing as Johannes Bohannon, Ph.D, the research director of the fabricated Institute of Diet and Health, biologist and science journalist John Bohannon ran what he called a “fairly typical study” used in the field of diet research.

German broadcast journalists Peter Onneken and Diana Löbl asked Bohannon to conduct a clinical trial into the effects of dark chocolate, as part of a documentary exposing how simple it is for bad science to make headlines.

“It was terrible science. The results are meaningless, and the health claims that the media blasted out to millions of people around the world are utterly unfounded,” Bohannon wrote of his in an article for io9.com.

To collate their data, the team asked 5 men and 11 women aged between 19 to 67 to follow either a low-carbohydrate diet, or the same diet but with an added 1.5oz of dark chocolate. Meanwhile, a control group were asked to eat as normal.

While the data showed that the group which ate a low-carb diet while indulging in dark chocolate lost weight 10 per cent faster and had better cholesterol readings, Bohannon stressed that the study was set up for failure.

“Here’s a dirty little science secret: If you measure a large number of things about a small number of people, you are almost guaranteed to get a “statistically significant” result.”Bohannon explained that thanks to a method known as "p-hacking", the study could have just as likely shown that chocolate helped sleep or lowered blood pressure as the threshold for data being classed as "significant" is just 0.05 per cent.

THE STUDY COULD HAVE JUST AS LIKELY SHOWN A POSITIVE EFFECT ON BLOOD PRESSURE THAN WEIGHT LOSS, SAYS BOHANNON (PHOTO: GETTY IMAGES)
 

After a journal was duped into accepting the shoddy study for money, Bohannon and his colleagues then put together a press release which would be irresistible to journalists and editors looking for a story.

The research was splashed across newspapers and websites across 20 countries in half a dozen languages, seemingly proving how easily dodgy science can circulate across the world’s media.

However, some have questioned the ethic behind the study, with one commenter writing below the piece:

"Going out of their way to court media coverage (that was going to repeat the story but never, ever follow up on the hoax once it was revealed — and this is a hoax) was ethically problematic,” one commenter said.

"If you want to uncover the shady workings, that didn’t really help. It seems like only the people who were already aware of the problems are going to be reached by this reveal."

The stunt came after Bohannon exposed how “open access”science journals were willing to publish deeply flawed research claiming that a drug had anti-cancer properties.

In the investigation for the prestigious journal Science, he revealed the dangers of abandoning the peer-review process expected in science publishing.

Injection drug which claims to help people lose more weight than they would by dieting or exercising could soon be available through the NHS

by Patrick Sawer in The Telegraph

A treatment of injections that can help people lost a stone more than they normally would by dieting or exercising more has been approved by health watchdogs.

Liraglutide, which has been described by doctors as life-changing, could be available on prescription in months.

Slimmers typically lose almost a stone more than they would by simply watching how many calories they consume and doing more exercise.

Trials showed that some severely obese patients lost so much weight they were able to abandon their wheelchairs and walk normally for the first time in years.

Liraglutide also lowers blood pressure, raises good cholesterol and prevents diabetes. 

According to its makers, Novo Nordisk of Denmark, the drug even produces a 'feel-good factor', making dieting a pleasure.

But some experts have already warned it does not provide a long-term solution to the growing problem of obesity in Britain.

Novo Nordisk will apply for it to be prescribed on the NHS after Friday’s ruling by the European drugs regulator that it is safe and effective.

There are fears however that Nice – Britain’s drugs rationing body – will judge it too expensive for routine use on the NHS.

Liraglutide costs from £2.25 a day, which is roughly double the price of Orlistat, the only other prescription diet drug.

Patients inject the drug into their stomach before breakfast every day. It works by suppressing appetite.

Liraglutide, which will be given the brand name Saxenda, is already used at a lower dose to treat diabetes. It is based on a hormone found in the gut and sends signals to the brain that trick it into feeling full.

As a result, people eat 10 per cent less food than normal.

Trials of Liraglutide found that men and women who injected themselves daily lost an average of 19lb in 12 months. This is almost a stone more than they would lose by being on a diet and increasing the amount they exercise.

Furthermore one third or those who took part in the trials shed 23lb – more than a stone and a half. For a 14 stone woman that kind of weight loss would usually mean dropping two dress sizes.

The drug which, like insulin, comes in an injectable pen, also has such a significant effect on blood pressure that patients can dispense with the drugs they use to keep it under control.

Like Orlistat, its prescription is likely to be limited to those who are obese or who are overweight and have another health problem such as high blood pressure.

Mike Lean, professor of human nutrition at Glasgow University, told the Mail: "Liraglutide is absolutely life-changing for many of our most difficult-to-manage patients. Most do well, and some amazingly well. And it is extraordinarily safe, at least over the two to three years for which we have good evidence, with no signals to suggest serious side-effects.

"The only real downside is that it is jolly expensive."

Professor Jason Halford, former president of the UK Association for the Study of Obesity, said: "It is potentially very exciting. The real benefit of it is that it is targeting appetite. It strengthens the effects of satiety."

Obesity levels have doubled over the past two decades, making the UK the second-fattest nation in Europe.

Extensive research has found that being obese can lessen person's lifespan by as much as nine years and raise the risk of a host of health problems including diabetes, heart disease, stroke and cancer.

Tests have shown that dieters taking liraglutide lose almost twice as much weight as those on Orlistat.

However, Professor Iain Broom, director of the Centre for Obesity Research at Robert Gordon University in Aberdeen, said that drugs were never going to provide a long term answer to obesity.

He said: "Until society changes and the Government’s relationship with the food industry changes and the food industry itself changes, we are not going to get anywhere very fast."

The European Commission is expected to approve the drug’s licence within the next two months, paving the way for it to go on sale. Novo Nordisk says it could be launched in Europe, including the UK, this year.

Arun Shourie on disinvestment in his times and the current CBI investigation

Written by Arun Shourie in The Indian Express| September 5, 2014 8:04 am

CBI move to investigate the disinvestment of Udaipur’s Laxmi Vilas hotel on the basis of an anonymous oral complaint, 12 years after the decision, holds a lesson for those who are trying to get the bureaucracy going.

Hindustan Zinc was privatised in April 2002. The privatisation was challenged on various grounds in the Supreme Court. In December 2012, after hearing counsel, the SC rejected the challenge.

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That did not deter the CBI. In February 2014 — TWELVE years after the disinvestment, and with HARDLY A YEAR having passed since the SC delivered its judgment — the CBI launched a new “investigation” into the disinvestment. 

When its officers came to me, I asked them about the complaint on the basis of which they had commenced the investigation. They said that there had been nothing in writing, just an oral complaint!

The same pattern has now been repeated in the case of the disinvestment of Laxmi Vilas Hotel in Udaipur. The hotel was disposed of in 2002. Of the ITDC’s 20-odd hotels, this one had distinguished itself by incurring the highest loss: to earn gross revenue of Rs 2 crore a year, the hotel spent Rs 3 crore — a loss of 51 per cent. The occupancy rate of the hotel had fallen to 26 per cent. Far from being a luxury palace, the place was in shambles — the plant and machinery were defunct, the furniture, etc were in the sorriest state that you can imagine. This will be evident from two elementary facts. ELEVEN parties expressed an initial interest in bidding for the hotel. FIVE of them carried out thorough due diligence. Such was the condition of the property that four of the five dropped out. I am informed that Bharat Hotels — the winning bidder — had to spend Rs 25 to 30 crore on renovating the place and getting its plant and machinery in working order. Furthermore, the quality of the staff was such that Bharat Hotels had to spend another Rs 3 to 5 crore on voluntary retirement schemes.

TWELVE years after the disinvestment, the CBI has registered an FIR — naming, among others, the then secretary of the disinvestment ministry and accusing him, among other things, of “dishonestly and fraudulently and with mala fide intention” doing this, that and the other. On what basis? The FIR itself states that it has been registered on the basis of “an anonymous complaint”. I will come in a moment to the utter indefensibles that mar the FIR, but the first point to consider is: Should any agency have the authority to harass civil servants for decisions taken 12 years ago? Should it have the power to ruin the reputation of civil servants and to put them to endless trouble 10 years after they have retired? Should it have the power to ruin people’s reputations on the basis of “anonymous complaints” and “oral complaints”?

One of the main objectives of the prime minister, and key to the other objectives he has in mind, is to energise the bureaucracy. Which is the civil servant who will take decisions, who will accept responsibility, who will stick his neck out, if 12 years from now, 10 years after he has retired, when he has no access to lawyers or records, he is going to be hauled up by sundry inspectors and SPs of the CBI?

Courts of no consequence

Nor does the parallel with Hindustan Zinc end there. That privatisation had been challenged and the challenge was rejected by the SC. The privatisation of this hotel too was challenged — and that challenge too was rejected, this time by the Rajasthan High Court. And the central ground on which the privatisation was challenged, and the ground that was decisively rejected by the high court, is the very ground on which the FIR focuses — a ground to which I shall revert in a moment. But first, the question that arises from that simple fact of rejection by the courts: when a high court has upheld a sequence of decisions, when the SC itself has done so, should an agency such as the CBI be able to open the matter yet again and start harassing officers and others?

And to open it TWELVE years after a decision has been taken? Shouldn’t there be a period of limitation?

Ruined reputations

Nor is it just a matter of harassment, though that is bad enough. No one who has not been put through the mill can imagine the strain and distress to which the person and his family are subjected by such inquisitions and “raids”. What about the irreparable damage to the person’s reputation? What bunkum did the CBI not put out just the other day about two distinguished civil servants, C.B. Bhave and P.C. Parakh? And what has it said now, while closing the cases against them? Should the CBI not be made to pay for the calumny it had hurled?

But I do feel that in this regard others also are at fault — the press, civil servants as a group and even the victims.

Has the CBI not somersaulted a sufficient number of times for the press to realise that it must not swallow and propagate what such agencies put out?

And the civil servants — haven’t they seen a sufficient number of times how they have themselves behaved in the wake of investigations against their colleagues? The moment the CBI says it has commenced an inquiry against X, his erstwhile colleagues treat him as a leper. Till yesterday, he was your colleague and friend, and now you avoid him. Shame on such colleagues and friends! That is no way to be: on the contrary, we must be fortresses around the honest, and all the more so around one who has been a colleague and friend, and of whose competence and integrity we have had personal knowledge.

And the victims — they are so easily felled, most of all by the apprehension that their reputation has been ruined. Such agencies and their concocted FIRs can ruin our reputation. Being calumnised by the dishonest is actually a badge of honour! I address audiences once a week or so. On these occasions, as is custom, the hosts use superlatives to introduce me — the positions I have held, the awards that have been given me, the books I have written… When my turn comes, I always say, “But the organisers have left out my two main distinctions. First, I am the only editor who has been dismissed from his job, not once but twice. Second, I have what none of you have — I am the only one here who has three certificates of honesty from the CBI.” So: thicker skins and a little contempt for the calumners!

The hotel

And now a few points about the hotel that is the subject of the new FIR.

The CBI has put out that the actual value of the property was Rs 151 crore, and government sold it for Rs 7.5 crore.

To substantiate that Rs 151 crore figure, the CBI says that the Rajasthan government itself had asked Bharat Hotels — the company that won the bid — to pay Rs 15 crore as stamp duty. True to character, the CBI conceals the fact that this demand, made by the local officer, has been stayed by the courts!

Next, it says that the hotel has 29 acres of land. It conceals the fact that this land, being adjacent to the lake, falls within the Coastal Regulation Zone and that nothing can be built on it. I am told that Bharat Hotels sought permission to add some rooms. And that the municipality refused permission on the ground that the land falls within the Coastal Regulation Zone. I am told that a case is currently before the SC against establishments that have constructed or added to structures along the lakeshore. Bharat Hotels has NOT been arraigned in the case.

But assume for a moment that, in spite of the regulations and in spite of the refusal of permission by the municipality, Bharat Hotels has built additional accommodation.

In that case, Bharat Hotels and the persons with whose connivance it has built the additional accommodation should be arraigned — not the disinvestment process and those who were associated with it.

Moreover, such absurd figures were the gravamen of the grounds on which the disinvestment was challenged. While rejecting them, the court rightly pointed out that a buyer does not buy assets in the abstract. He buys them for their business potential, that in the instant case he was buying not assets but shares of a company considering their earning potential.

There is another telling point. I am not sure if the CBI investigators remember that 10 per cent of the shares of the ITDC, the government company that owned the hotel, were owned by none other than the Indian Hotels Company of the Tata Group. It was compensated for its equity at exactly the same rate that the government got from the disinvestment. Had the property been worth Rs 151 crore, would the Tata Group — a private company, answerable to its shareholders — have accepted Rs 70 lakh (10 per cent of the value for which the hotel was sold) and thereby sacrificed Rs 15 crore (the 10 per cent share that would have accrued to them if the value of the hotel had been Rs 151 crore)?

Contrary to what the CBI has insinuated, the asset valuer was jointly chosen by the financial advisors (Lazard) and the ITDC from among the list of government-approved valuers. Five or more valuers from the government-approved list were invited to make presentations. Their qualifications and experience were jointly examined, and then alone was the particular firm chosen for the task.

That care marked every other step also. As in every case of disinvestment, every single one of the prescribed procedures was meticulously followed. Every step of the process, including the setting of the reserve price and the acceptance of the final bid price, was taken with the explicit approval of the Cabinet Committee on Disinvestment. In particular, the shareholders agreement was cleared by the law ministry thrice over — at the draft stage, at the stage when it was frozen and finally when the bids were to be accepted. The then law minister is the one link between that cabinet committee and the present government: he was law minister then and a member of the Cabinet Committee on Disinvestment, and is in-charge of the disinvestment department in the present government. He has stated in an interview that he is well acquainted with every aspect of the disinvestment and that everything about the transaction was in order.

Telling figures

A young analyst, well acquainted with valuations, draws my attention to a series of facts that show how way off the CBI’s imaginative figure of Rs 151 crore is. I will list just a few of them.

* Laxmi Vilas Palace was one of the 20-odd properties owned by the ITDC and amongst the smallest. Further, of its properties, it was the one that was making the highest losses.

* Between 1996 and 2001, the occupancy of Laxmi Vilas Palace came down from 41 per cent to 26 per cent and the hotel faced heavy losses.

Note that the overall occupancy in Udaipur was still 41 per cent in 2002.

* Given the abysmal performance, the net profit margin reduced from 34 per cent to a loss of 51 per cent; to earn gross revenue of Rs 2 crore, the hotel spent Rs 3 crore! At the time, the average hotel in India made Rs 4.5 crore in revenue and Rs 1 crore of net profit (assuming a 25 per cent margin).

* A valuation of Rs 151 crore for the property, as suggested by the CBI, would imply a valuation of over Rs 3,000 crore for the 20-odd ITDC hotels in 2001-02. Compare this figure with the valuation of the Tata Group’s Indian Hotels (one of the most efficient private operators, which owns the Taj Group of hotels and had at that time 65 properties with around 8,100 rooms). This latter chain had an equity valuation of barely Rs 800 crore in 2002.

* The full enterprise value of the Taj Group in 2002 was Rs 2,400 crore for the 65 hotels it owned; each Taj hotel had an average of 125 rooms. At that valuation, each Taj property was being valued at Rs 36 crore. Laxmi Vilas was and is a 55-room hotel; so, even on Taj benchmarks of valuation per room, it would be worth Rs 15 crore! At the Rs 3 crore a room that is implied in the CBI’s figure, Indian Hotels (with a portfolio of around 8,100 rooms) should have been worth Rs 24,000 crore in 2002 itself; that is, more than twice what the company is worth in 2014!

Other comparables also highlight the imaginativeness of the Rs 151 crore valuation:

* HVS are one of the leading consultants and valuation experts in the hotel space globally. They do a detailed assessment of hotel values by city. While they did not do a study for Udaipur, they did one for Jaipur. Their estimate for a hotel in Jaipur in 2002 was Rs 12 lakh per room for a medium-class hotel and Rs 30 lakh per room for a luxury property. Similarly, their range for Agra was Rs 9 lakh to Rs 12 lakh per room.

Udaipur was not part of the golden triangle and had lower occupancy rates and far lower rentals in comparison with both Agra and Jaipur. Based on their assessment and an average rate of Rs 12 lakh per room (accounting for the poor profitability of Laxmi Vilas), one gets a value of Rs 6.6 crore for Laxmi Vilas. Even at the high-end valuation of Rs 30 lakh per room, one gets a value of Rs 16 crore!

* In accordance with the HVS studies, even today a luxury hotel in Jaipur would be worth Rs 77 lakh per room; that implies a value of Rs 42 crore for a 55-room property, 14 years after the disinvestment of the Udaipur hotel!

* Lands End Hotel in Mumbai was purchased by the Taj Group at Rs 80 lakh a room in 2002. This was the highest prime property sold in India in that year. However, if we go by the CBI allegation of a value of Rs 151 crore for Laxmi Vilas (a 55-room hotel), we would have to place the value at Rs 3 crore a room in Udaipur. Udaipur had an occupancy rate of 41-42 per cent over 1999-2002 and room rates of Rs 1,900, as against Rs 3,500 for Mumbai.

* In 2011, Sinclair Hotels purchased Savannah Hotels in high-end Whitefield in Bangalore for Rs 38 lakh per room. At this 2011 valuation, Laxmi Vilas would be valued at Rs 20 crore.

* In 2008, Mahindra Holidays & Resorts purchased Hotel Ooty Villa Park from PVP Ventures — a 100-room property — for Rs 33 crore (including all amenities and assets). This is in 2008 — six years after one of the fastest growing periods in terms of real-estate pricing in India.

* In 2014 (12 years after the Laxmi Vilas transaction), Royal Orchid sold its 155-room property in Hyderabad for Rs 175 crore. Even at this price of Rs 1.2 crore per room, the Laxmi Vilas property would be worth Rs 70 crore. How is the price for a five-star property in Hyderabad 12 years later still unable to justify the supposed Rs 151 crore valuation in 2002?

I can go on adding to the list. But the point will be obvious: we can be fairly certain that the CBI officials in Jodhpur would be innocent of such comparisons. There is a real problem here, and it holds a lesson. Even if one sets aside conspiracy theories, the problem is that the CBI staff, especially at the lower level, just do not understand valuation and other aspects of such transactions. I have had personal exposure to this innocence — when the CBI officials came to ask me about the disinvestment of Hindustan Zinc, for instance.

At the least, that holds one lesson for all who are today trying to get the bureaucracy going: among the reforms that are urgently required is to upgrade the domain knowledge of officials working in our investigating agencies. Otherwise, goaded by pep-talks, honest officers will take decisions on complex matters, only to be hauled up 10-12 years later by persons innocent, at least of considerations that bear on those decisions.