Prime Minister Narendra Modi’s decision to make one of the most market-friendly members of his Cabinet, Suresh Prabhu, the Civil Aviation Minister is significant. It coincides with the decision to expedite the sale of Air India. While the Telugudesam Party’s decision to withdraw from the Union government, where the Andhra party’s Ashok Gajapathi Raju held the ministry until two days ago, the portfolio could have gone to another MP of the NDA who would inspire less confidence of economists. Thankfully, it did not. The new minister’s first major task is to preside over the sale of Air India, bearing a debt burden of over Rs 50,000 crore. Registering an operating profit for the first time in a decade does nothing more than reducing the annual net loss after tax marginally. When the government instructed the banks to convert a part of loans into equity share and RBI to provide concessions for debt restructuring, the debt eased imperceptibly. Simply put, since all adult citizens pay taxes — the poor pay it in the form of consumption taxes — it means sponsoring a means of transport of the rich using the money of the poor who cannot afford to fly! Only the anachronistic — irrespective of their numbers in society — with no knowledge of economics, want a certain airline to be a “national carrier”. They forget conveniently how Tata Airlines, a private company, was usurped by the state under Indira Gandhi as part of her blanket application of socialism, and turned miserable [as the company stayed with the government, even socialism was compromised when several profit-making routes were sold off to private rivals during the UPA rule in the last decade]. The current NDA government made the mistake of populism. To play to the gallery, the UDAN — Ude Desh ka Aam Naagrik — scheme was launched along the lines of Lalu Prasad Yadav’s Garib Rath in the Railways. The government forgot that a low-income pocket of the country has several problems to address before its people needed to turn frequent fliers. If the potential buyer’s concern is low revenue owing to an inadequacy of passengers from these places, subsidising the air tickets would be a travesty.
Trade unions are another problem, more so because India’s right-wing follows an economic policy hardly distinguishable from that of the left wing. And on matters like FDI, genetically modified crops, competition in the market, etc, the current regime gets easily browbeaten by the likes of Swadeshi Jagaran Manch of the RSS, if not by communist unions. They wouldn’t pay heed to sane advice even when told that there would be no job loss at Air India, as the workers will be absorbed by other PSUs (although that does not address the injustice that 100% taxpayers should fend for less than 2% of the population that works in the government sector).
Appreciating market economics does not make selling off Air India an easy proposition, though. In its present condition, the airline will attract few buyers even if a large part of the company’s liabilities is borne by the government. It was, therefore, wise of the government to decide to throw Air India open for bidding as four entities. A business house may be interested in the low-cost Air India Express and subsidiary Air India and Singapore Airport Terminal Services while another may evince interest in the regional arm Alliance Air. Moreover, selling the engineering, catering, ground handling and hospitality services will help raise capital to settle the debt. Add to that the sale of real estate properties like the buildings at Nariman Point and Santa Cruz in Mumbai, the office on Baba Kharak Singh Marg in Connaught Place of New Delhi, freehold land at Anna Salai in Chennai, the land and buildings in Hyderabad, etc. While 51% is the minimum stake that must be sold to give the new owner decision-making powers, the businessman would prefer working in a scenario of no government interference. So, the government must come out of this sector completely. Many experienced pilots will retire soon; the new owner will, hence, require a contingency recruitment plan. Once the government invites Expressions of Interest in the next few weeks, the real picture of the private sector’s interest will emerge. The permission to foreign companies to own up to 49% of the stakes will add good competition to the bidding process. More players will be interested if the international and domestic lines are integrated so that the segments turn mutually beneficial. Those interested in buying Air India will also factor in how long the international crude oil price stays below $80 per barrel, which would keep passenger traffic growing. Prabhu, who has restructured and reformed the Railways well, will hopefully negotiate the process in a judicious and clean manner.