Starlink episode points to tightropes in changing political economy

Why in the News

Elon Musk has accused Reliance Industries of behaving like an oligarch by blocking Starlink’s entry into India’s satellite broadband market. The Union government says Starlink faces the same regulatory requirements as its rivals. The episode raises a wider question: whether India’s liberalised economy is genuinely open to new competitors.

How did the business-state relationship shape Indian capitalism?

1. Licence-permit raj: Under the licence-permit raj, firms needed government licences to invest, produce or expand. It was justified by the scarcity of capital and the need to direct investment towards national priorities.
2. Rent-seeking: The system rewarded rent-seeking, meaning profit earned through access to the state rather than better products. Obtaining a licence, foreign exchange or an exception mattered as much as innovation.
3. Incumbent advantage: Established business houses built political access and regulatory know-how alongside production, which gave them advantages new entrants could not overcome.
4. The takeaway: Navigating the state, not only serving customers, became a source of competitive advantage in Indian business.

What did the 1991 reforms change, and what did they leave intact?

1. Liberalisation since 1991: The reforms transformed the business landscape. They did not end the close tie between economic power and political authority.
2. State-controlled scarce resources: The most valuable new opportunities arose where the government still controlled scarce resources. Eg. Telecommunications spectrum, the radio frequencies that phone and satellite services need.
3. Private ownership versus competition: Markets cannot be presumed competitive merely because ownership is private. An economy can liberalise extensively and still retain formidable barriers to entry.

What does the American experience show about state and competition?

1. Industrial fortunes: America’s 19th-century expansion produced the fortunes of John Davison Rockefeller, Andrew Carnegie and Cornelius Vanderbilt, often with monopoly power and political influence.
2. Antitrust tradition: The Sherman Act of 1890 and later competition policy, rules that stop dominant firms abusing market power, accepted that successful capitalism can concentrate economic power destructively.
3. Technological disruption: New firms repeatedly challenged incumbents using deep capital markets, research universities and publicly funded research. Eg. Tesla against established carmakers, SpaceX in space launches.
4. State as enabler: SpaceX gained from National Aeronautics and Space Administration (NASA) contracts, and Tesla from electric vehicle incentives. The key line separates state action that creates competition from action that shields incumbents.

Why is satellite broadband a test of India’s competition policy?

1. Nature of the sector: Satellite broadband has huge fixed costs and strong economies of scale, meaning cost per user falls as the network grows. It benefits remote areas but needs regulation for security and spectrum.
2. Pending approvals: Starlink, Reliance Jio and Eutelsat OneWeb hold preliminary approvals. All three await security clearances, data integrity checks and spectrum assignment before commercial operations.
3. Three sources of entry barriers: Some barriers protect genuine public interests. Others survive because incumbent firms benefit, and still others arise from administrative inertia or risk aversion.
4. Bureaucratic caution: Officials often cite the fear of vigilance charges as a reason to preserve the status quo, so competition suffers.

Challenges

1. Concentrated political influence: Institutions may fail to sustain competition when commercial stakes are high and political influence is concentrated.
2. Risk-averse administration: Fear of vigilance cases pushes officials to delay decisions, which favours firms already in the market.
3. Conditional globalisation: Globalisation has become more conditional, negotiated and explicitly political. Eg. Starlink’s case amid difficult India-US economic talks.

Way Forward

1. Entry-focused competition policy: Competition policy should examine the conditions under which potential competitors are permitted to enter, not only conduct after entry.
2. Equal clearance process: Regulators should apply the same security, data integrity and spectrum steps to every satellite operator, foreign or Indian.
3. Protection for honest decisions: The government should shield officials taking bona fide decisions from vigilance action, so that inertia does not block entry.

Conclusion

Liberalisation removed licences but not the advantage that access to the state confers, so a market is open only if its entry barriers are designed and run fairly. Whether satellite broadband operators are cleared on equal terms will show if India’s institutions can resist the concentration of wealth and power that capitalism tends to produce.

Evolution of Industrial Policy in India

1. MRTP Act, 1969: The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 regulated large business houses to prevent economic concentration and restrict big-firm expansion.
2. De-licensing, 1991: The New Industrial Policy, 1991 abolished industrial licensing for most sectors and retained it for only a handful of industries.
3. Competition Act, 2002: MRTP asset thresholds were removed, and the Competition Act, 2002 later replaced the MRTP Act.

Matching Previous Year Question

“[2013, GS3, 10 marks] Examine the impact of liberalization on companies owned by Indians. Are they competing with the MNCs satisfactorily? Discuss.”