Beyond Air India

The government’s proposed sale of Air India has finally, after several abortive attempts, begun to see some forward movement. Several expressions of interest (EoIs) have been reportedly received, including one from the Tata group, which has long had an interest in the airline — which is, after all, a direct descendant of the Tata Airlines that was nationalised after independence. Any sale of Air India to the Tata group would be seriously complicated by Tata Sons’ interest in two other airlines — the low-cost carrier AirAsia, which it runs with a Malaysian partner, and the full-service Vistara, where its partner is Singapore Airlines. While overall some consolidation in the sector would be useful, the fact is that airline mergers have not typically done well in India, and Tata Sons’ partners might have different views on the way forward. Also, if Air India and Vistara merge, that would leave India with only one full-service airline and give the merged entity a near-monopoly in India of long-haul international travel.

From the point of view of the government, however, the need is to get Air India off the books as soon as possible. In any case, it was unlikely to ever get a good price for an airline that is so encumbered and no longer even has goodwill with flyers. The pandemic, which has hurt the travel and leisure industry in particular — and from which, in spite of vaccine availability, there is no clear timeline for emergence when it comes to consumer behaviour — will further reduce the willingness to pay for an airline. So the government must clearly understand well in advance that the point of this sale is not revenue generation. It is to get an asset that drains away resources off the government’s balance sheet. It is also important to use this repurposing of these assets to revitalise a troubled sector and to more efficiently deploy existing capital.

It is worth considering these facts in the larger light of the disinvestment programme. Too often disinvestment is seen by the government purely in terms of the revenue that can be generated in order to plug fiscal holes. And certainly, in the current context — with the goods and services tax systematically underperforming in revenue generation and more and more calls on the fisc, given the exigencies of the pandemic — extra non-tax revenue is especially welcome. But the broader argument for disinvestment is that the private sector would make more efficient use of assets, which the government may have run into the ground. At a time when growth and recovery is of paramount importance, this argument for complete privatisation can no longer be discounted. Air India must only be a beginning. The government must begin to look around to see what else is being underutilised by public sector participation or monopoly. Coal resources, for example, will now be better utilised given the opening up of private mining earlier this year. Even the profitable public sector can no longer be thought of only as a cash cow for the government. While the government will hopefully ensure that this time the Air India sale goes forward and is closed, it must also consider a longer-term outlook on privatisation at this point. In May this year, Finance Minister Nirmala Sitharaman had talked about a Public Sector Enterprises policy that will make sure there is a maximum of four PSEs in strategic sectors, while others are privatised. Seven months later, the policy is still in the works.


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