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What the Air India privatization means for India

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The ongoing privatization of Air India will reduce the government’s borrowing burden, and revive confidence in the country’s reforms agenda. Mint explains the privatization of the national carrier, and its implications for the Indian economy.

The ongoing privatization of Air India will reduce the government’s borrowing burden, and revive confidence in the country’s reforms agenda. Mint explains the privatization of the national carrier, and its implications for the Indian economy.

Why did the Centre sell Air India?

Air India, whose condition deteriorated in the decades since it was nationalized in 1953, is returning to the Tata group which founded it. The government decided to privatize it not only because it was burdened with massive debt, but also due to the changed policy approach. Over the last three decades, successive Indian governments have shifted from playing a pro-active role in economic development to being a facilitator. The current central government believes it has no business to be in non-strategic areas. The airline sector happens to be an example of one such non-strategic area.

But why did it sell the family silver?

Air India had become a major liability draining away tax-payers’ money, which could otherwise have been utilised for many welfare schemes targeted at the poor. One can see that the airline’s mountain of debt had only been piling up and worsening every year rather than improving. At the end of August this year, it had a colossal debt of 61,652 crore. Talace Pvt. Ltd, a unit of Tata Sons Ltd, will assume 15,300 crore of debt, with the balance 46,262 crore taken over by the government’s Air India Asset Holding Ltd. The Tatas will also pay 2,700 crore in cash to the government.

What is the significance of Tatas winning the bid?

The Tatas merely happened to be the successful bidder in a transparent disinvestment process using internationally accepted norms. However, it assumes special significance since it was founded by J.R.D Tata. The Tata group is reputed for its professional approach, and has recent experience operating Vistara and AirAsia.

What does the deal mean for investors?

In short, a decisive step forward. Air India was listed for disinvestment over 20 years ago, and its sale now highlights the government’s commitment to economic reforms. This may send a positive signal to domestic and foreign investors, boosting the upcoming divestment of a couple of Navratnas. This may also brighten the country’s economic environment, at a time when the macroeconomic indicators are looking up thanks to greater mobility and rising vaccinations

 

 

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