Air India is a bright start; Govt must build on PSU privatisation momentum

Indian aviation, air India, indigo
The Indian airline industry is expected to witness stiff competition between Indigo and Air India, which is looking to consolidate the four airlines owned by the Tata Group.

The government has successfully privatised Air India after toying with the idea for more than 20 years. With this, the things have come full circle at the national carrier – Air India came in existence by nationalising Tata Airline in 1953. The privatisation plan was kicked off by the Atal Bihari Vajpayee government in 2001. Finally, after many false starts, the process has completed in October 2021. The government needs to be congratulated for this brave initiative.

The timing is perfect as other airlines in the private sector have cornered a substantial business share. The choice of Tata also ensures responsible behaviour. The bidding process also inspires confidence, especially the amount of sealed-envelope minimum price and that of the bids received.

The business of the government is to create a business-friendly environment in the country. The conducive environment thus created encourages the private sector to invest, be creative, and leverage the advantage to produce more. The more private sector produces, output increases, employment is generated and growth takes place. If the government starts competing with private sector, neither the government nor private sector benefits.

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Why not government

In a weak or underdeveloped economy, it may be necessary for the government to create productive assets in the absence of a capable private sector. Once the economy grows and the engines start firing, the government should hand over the businesses to private sector. In India, once the private sector airlines entered the Indian skies, Air India started suffering losses. From a monopoly, it became just a parts player as private airlines started capturing profitable routes. Losses mounted and the government had to provide financial support using tax payers’ money.

The objectives of the government and the private sector are different. The objective of the government is good governance, equitable distribution of wealth to achieve social justice, and creating an environment where growth is sustainable. The government has also to consider another objective of creating employment, especially in a demographically rich country.

The function of the private sector is in sharp contrast – profit making and brand building. Empirically, resources employed in the private sector are more productive and optimally utilised. For a growing economy with a young demography, private sector is more useful. In the private sector, many more minds work to explore opportunities and consequently effective/productive employment is generated compared with disguised employment in public sector.

Commercial enterprises operate on a competitive basis compared with the government. The government always works on altruistic motives. The private sector has a single motive – profit making. The staff, including the top management, in the private sector is trained accordingly while public servants are groomed differently. When private sector airlines start competing with a public sector airline, the differences in management styles become apparent.

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Case of Air India – an anecdote

The operations of Air India were extensive as it was the national carrier. In addition, it was operational on sectors where the private sector would not venture, covering smaller cities and in far-flung towns of the Northeast. Now that the private airlines have picked up, service to these cities and sectors would not be impacted.

One sector which Air India pioneered was Delhi-Washington route, connecting the capitals of the two democracies. It was an excellent move and the passenger traffic started picking up. Air India did the spade work, built traffic on the route, popularised it and then abruptly stopped. Why? Air India had incurred a cost in setting up an office in Washington DC and making arrangements in an expensive terminal at the Washington Dulles international airport. Thus, commercial enterprises in the public sector can get manipulated for non-economic reasons, but not the private sector where the business is run with profit motive.

The privatisation of Air India means that the stressed Union Budget will be able to allocate resources to productive sectors, and not subsidise the airline. The level playing field will be established in the domestic aviation industry – price of travel and quality of service should improve eventually. The regulator will be able to evaluate the performance and penalise for any behaviour in an unbiased manner, especially if collusive pricing strategy is being adopted in the market.

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Hasten privatisation drive

Privatisation of national assets is not an easy task. In 1997, I was exposed to the challenges of finding an appropriate price of Navratna PSUs. What is an appropriate price? Does the stock market provide a clue? The stock market price is not a long-term benchmark to determine the appropriate price. The government has achieved success in arriving at a competitive price for Air India. The government and its officers need to be complimented for developing this expertise.

The nationalisation of commercial banks was not done from the lofty ideals of ensuring a bank in rural areas, as it now turns out. The social responsibility argument furthered in 1969 and 1980 was basically camouflaging political ambitions. In any case, much water has flowed in the Ganges since then. The Jan Dhan scheme has achieved resounding success giving rise to JAM trinity and impetus to Fintech start-ups. Thus, the privatisation of commercial banks in public sector should begin soon as loss-making banks are regularly supported by a help from the budget of the government.

The government has provided support to augment the balance sheet of the public sector banks. The trend of public sector banks was popular in many countries, especially those influenced by socialist ideas. In almost all these countries, public sector banks have been privatised. The recently announced asset monetisation scheme also needs to be implemented as it will provide resources to cash-starved central and state governments. The prime minister’s call of ‘Minimum Government and Maximum Governance’ is most appropriate in the current context of building India, recovering from deep scars of Covid-19.

The $5 trillion economy cannot be achieved in life-as-usual attitude and would require thinking out of the box. It requires an enthusiastic and dynamic private sector. In view of the abundant talent and demographic dividend, the private sector has to shoulder more responsibility. While the government is demonstrating a willingness to share this responsibility, private sector has to pull its weight.

(Dr. Charan Singh is the chief executive of EGROW Foundation, a Noida-based think tank. He was the non-executive Chairman of Punjab & Sind Bank. He also served as full time visiting faculty and former RBI Chair Professor (Dec 2012 to Dec 2016) at the Indian Institute of Management Bangalore.)

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Dr Charan Sigh is a Delhi-based economist. He is the chief executive of EGROW Foundation, a Noida-based think tank, and former Non Executive Chairman of Punjab & Sind Bank. He has served as RBI Chair professor at the Indian Institute of Management, Bangalore.