The Maharajah to reach for the skies again in a new avatar
The Air India privatisation needs to be looked at from a point of view other than just disinvestment—it has never been so good for India’s private sector
Last week, the Union cabinet bit the bullet on the long-pending proposal to privatise Air India, the country’s national air carrier. If all goes to plan, come September, the airline will be privately controlled with a new owner at the helm—and the government’s share in the company will shrink to 24%.
Alongside, the government has also given the mandate to offload its entire stake in low-cost international carrier Air India Express Ltd and 50% in Air India SATS Airport Services Pvt. Ltd, a joint venture services company managing airport logistics.
Indeed this is a remarkable decision.
Not just is the decision generally politically sensitive—given that there is an air of uncertainty, despite assurances to the contrary, on the future of its employees—but it has come with less than a year to go for the campaign for the 17th general election. It is a reform initiative of the sort that a government normally takes up in the first half of its tenure. (The muted response from the otherwise vociferous corner of self-appointed votaries of reforms is unexpected therefore.)
But then, Prime Minister Narendra Modi has always come across as someone with a consummate appetite for calculated risks—the rollout of the goods and services tax (GST) last year and demonetisation of high value currencies two years ago are some examples. Regardless, the ball has been set rolling on a move that could potentially redefine the country’s appetite for privatization and of course further embellish the ecosystem for private enterprise—a new look Air India with its extensive network will be great for the sector and competition. In fact, it may well set a new template for privatization, something that may be deployed even for the ailing government-owned banks.
Most public sector undertakings (PSUs) have (with the exception of national treasures like Indian Space Research Organisation) long lost their status as “commanding heights” in the economy—bestowed on them in the Second Five-Year Plan—and have increasingly become a source of serious fiscal bleed; a process that has accelerated with the private sector slowly finding its feet as the country continues to dismantle the last vestiges of the licence raj regime.
Take Air India for example. At one time, it had a near monopoly of the skies over India; according to the latest numbers, its share of domestic traffic is 12.3% and global traffic is 16.9%. A similar narrative is playing out in banking, where the disruptive pressures of technology is threatening even the established private players. In both sectors though, political interference has accelerated the slide.
While this may be the reality, even four years ago a move to privatize Air India would have met with the predictable rounds of indignant anger and accusations of selling “family jewels”; the current logjam in Parliament precludes scrutiny by legislators too. Nonetheless, it does seem that the public response this time has been muted. Guess the national airline, with its spiralling debt and chalta hai attitude of its front office, together with the visible success of private competitors, may have contributed to a less charitable public mood. Let us not forget that thanks to budget travel and competition, many among the public are consumers too. (Extend this logic and it is plausible that the black sheep among the PSU banks are not helping the cause of their employers by facilitating heists like that one that unravelled at Punjab National Bank or playing along with those laundering black money during demonetization.)
In the final analysis, it is clear that the previous avatar of the National Democratic Alliance (NDA) led by prime minister Atal Bihari Vajpayee pushed the envelope on disinvestment, especially with the push for the privatisation of Balco. Ten years later, the NDA led by Prime Minister Narendra Modi has inked a new standard.
Look at this from a different point of view other than disinvestment: it has never been so good for the Indian private sector.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.
His Twitter handle is @capitalcalculus. Respond to this column at firstname.lastname@example.org.