In its third attempt to sell Air India, the public airline which has a debt of more than 60,000 crore rupees, the government may be successful this time. In the last two attempts, the government failed because it was trying to transfer all of its debt to bidders, to which no company agreed. So this time, to make the bid more attractive, the government transferred debt worth 22,000 crore rupees to a Special Purpose Vehicle, and it seems the move has worked. Because there are many national and international bidders including Tata and Ajay Singh- led Spicejet who are willing to take over the flag carrier.
The time for privatization of Air India had come almost a decade back when the middle class started flying and the prices of air tickets started falling despite the rise in fuel cost. Companies like Air India used to operate with the perception that air travel is a luxury, not a utility. However, with the rise in the income of the middle class and a fall in the ticket prices, thanks to the entry of players like IndiGo, Spicejet, GoAir, air travel grew around 20 percent per annum in the last decade.
The companies like IndiGo made two major revolutionary changes in the Indian air travel space; The first was that they cut all the unnecessary expenditures that were provided in the name of ‘good services’, which brought down the price of the tickets substantially.
And the second was to start flights for tier II and tier III cities like Patna, Kanpur, Lucknow, Bhopal, Indore, etc. The managers of Air India, who were corrupt and ‘old-school’ elitists, were not able to realize this opportunity, and the company started incurring losses. Moreover, the rampant corruption during the UPA government worsened the financial health of the company, and today it posts losses worth billions of dollars every year.
The only reason why Air India survived was that it had access to taxpayers’ money through the Government of India. But the Modi government was very clear from the very first day of the administration that ‘the government has no business to be in business’.
When it could not successfully divest stake in Air India during the first tenure, in the second tenure, the Modi government reconstituted a group of ministers, headed by Home Minister Amit Shah in 2019. The government has also frozen the promotion of employees and recruitment of new personnel; the debt-ridden carrier which employs more than 10,000 employees is burdened with 60,000 crore rupees worth of debt.
If the government can sell the debt-ridden company this time, it would not only save billions of dollars in operational expenditure every year but it will also be a great message on the direction of its political economy.
Since the initial days of independence, India has always been a ‘confused economy’. The government kept the private players out from ‘big industries’ and operated with a monopoly. However, small industries were kept open to the private sector. In 1991, the country started economic liberalization and opened big industries for the private sector. But capitalism was based on favouritism and the government was more ‘pro-business’ than being ‘pro-market’. However, the Modi government is trying to make ‘New India’ a rule-based capitalist economy.