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The Narendra Modi government’s decision to privatize Air India needs to be welcomed. There is no reason why the government should be running a business where the private sector has a vibrant presence—it distorts the market and often results in high fiscal cost. This principle applies to all areas where government-owned companies are competing with private sector enterprises.
Even though it is being reported that several airlines have shown interest in buying Air India, privatization of the debt-laden airline may not be easy. It is possible that the government will have to go the extra mile to make the deal attractive for prospective buyers. It will need to tread carefully and find a way that is acceptable to all stakeholders.
The privatization of Air India will boost investor sentiment in a big way as it demonstrates the government’s willingness and ability to take the reforms process forward even in the fourth year of its tenure. The Modi government would do well to make Air India the beginning of a renewed focus on the process of disinvestment and privatization.