Sixty-nine years since it was nationalised and 20 years since the disinvestment process began, the flag carrier Air India (and its sister AI Express) is back to the original promoter Tata Group. A glaring mistake of the outdated Nehruvian economic model is finally corrected. The national exchequer is saved from financing Rs 20 crore loss a day.
But that may not be sufficient reason to rejoice. The delay in disinvestment had cost India tens of billions of dollars. Approximately, Rs 110,000 crore ($14.7 billion at current exchange) was infused in Air India in cash and loan guarantee since 2009-10. The country must take a lesson from this colossal wastage and stop incentivising delays in decision-making.
The task ahead is not merely a fast implementation of other disinvestment proposals but to create a framework for transparent yet time-bound decision making in all spheres of governance and public policy. To err is human but not taking a decision cannot be a decision.
If you think that’s too much to ask, take a closer look at Air India’s finances. As of 31 August 2021, the airline had an outstanding debt of Rs 61,562 crore. The accumulated loss was Rs 77,953 crore as of 31 March 2021. The net worth was Rs 44,000 in the negative.
Despite owning a large fleet, huge manpower of 15,000 people and last but not least enjoying government support; the airline controlled only 12 per cent of the domestic air travel market in September 2021. In comparison, privately-run Indigo had 56 per cent share, Vistara of Tata 8.7 per cent and SpiceJet 8.5 per cent.
There is more to this story. To keep the airline’s cash box churning, the government directed its entire air travel expenses to Air India. Government employees mandatorily travelled in ‘sarkari’ airlines, ignoring cheaper options in the private sector. It means, there were many hidden costs to keep the white elephant running.
There will be a cost in its separation too.
Tata has taken the responsibility for Rs 15,300 crore debt liability. The government is left with Rs 46,262 crore debt. This is partly recoverable from the non-core assets (which were not divested) valued at Rs 14,718 crore. The government will also get its share of revenues from 50 per cent ownership in the ground handling company, Air India SATS.
The deal has not come cheap to Tatas. Apart from sharing the debt liability, they paid Rs 2,700 crore in cash to the government. The 15,000 employees will be retained at the prevailing salary (Rs 3,000 crore) for one year. Separation, if any, will cost extra. This is, however, peanuts to the huge investments that the airline requires to come back in black.
The sins of Air India nationalisation are finally behind us. However, the Narendra Modi government should come out with a white paper on the amount of money the nation had wasted on the airline during the United Progressive Alliance rule (2004-14), when privatisation came to a standstill.
The Manmohan Singh government reduced disinvestment to a mere stake dilution exercise. Worse, a good part of these stake sales was financed by the unlisted public sector financial institutions. That was fake disinvestment.
The primary idea behind disinvestment is in allowing market forces to play. The government has enough regulatory powers to ensure national good. The private miners in Indonesia are forced to give coal to their electricity generation sector at a discounted price, which is a fraction of the export revenue.
The government must focus its energy on facilitating economic growth either by way of building infrastructure or giving incentives — like the recently introduced production linked incentive in select manufacturing sectors in India — to promote specific economic activities. Fiscal gains come through higher tax revenue.
The world of business is not ruled by any fixed set of ideas. There can be situations when the government should intervene in the production system.
The Energy Efficiency Services Limited (EESL), created by the Modi government, played a crucial role in reducing the cost of energy-efficient lamps and popularising their use. Similarly, the National Payments Corporation of India (NPCI) broke open the monopoly of foreign payment gateways and democratised digital payment systems.
The primary determinant for government ownership in business should, therefore, be determined by the strategic needs. Globally high-profile energy deals are political in nature. State-owned companies have a role here.
To back such mega-sized deals, countries need large financial institutions. And, in many cases than one, such financial institutions are owned or controlled by the state sector.
Following this principle, India needs half a dozen global sized banks. But that doesn’t mean India has to stick to the ownership of the Central Bank of India and Indian Overseas Bank which neither have scale nor have decent performance under their belt.
State-owned Bharat Petroleum makes a profit. But it was a highly efficient private company that was nationalised.
If oil prices are deregulated and there remains as large a state-owned company as Indian Oil, why should we need more public sectors in that space? Why should government crowd out market space?
True, privatisation is no panacea. It is also true that the socialist ecosystem had spread unfounded fears about private sector operation. The insurance (both life and non-life) market in India was largely untapped and insurance products were abnormally costly, till the public sector had a monopoly there. Competition and regulation changed the equation.
If the world doesn’t follow a fixed set of ideas, decision making has to be dynamic too. And, since decisions are taken based on a particular situation, there is a possibility that some of them may not prove correct in the longer run.
That’s normal for both the private sector as well as government. The difference lies in owning the mistake and taking quick corrective measures. The government simply lacks that system. Files are pushed in the name of security and transparency. Decisions are postponed. The nation pays the price through missed opportunities.
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