Disinvestment in India

Explained: Air India Disinvestment Deal

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Air India

Mains level : Air India disinvestment

After 68 years, Air India is all set to return to the Tata fold.

What is the deal?

  • The Tatas will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS.
  • Apart from 141 planes and access to a network of 173 destinations including 55 international ones, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah.

History of Air India

  • Prominent industrialist JRD Tata founded the airline in 1932 and named it Tata Airlines.
  • As India gained Independence, the government bought 49% stake in AI.
  • In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, the Air India International was launched with flights to Europe.
  • In 1953, Air India was nationalised and for the next over four decades it remained the prized possession for India controlling the majority of the domestic airspace.

Why was Air India sold?

  • End of Monopoly: With economic liberalisation and the growing presence of private players, this dominance came under serious threat.
  • Govt running an airline: Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
  • Continuous losses: By 2007, AI (which flew international flights) was merged with the domestic carrier, Indian Airlines, to reduce losses.
  • Wastage of taxpayers money: But it is the mark of how poorly the airline was run that it has never made a profit since 2007.

Why wasn’t it sold earlier?

Ans. Fear over Operational Freedom

  • The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government.
  • But that attempt — to sell 40% stake — failed.
  • In 2018, the government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.
  • In the latest attempt started in January 2020, the government has been able to finally conclude the sale.

So how was it managed this time?

  • Govt gives up stakes: The mere fact that the government retained a partial stake. In other words, as long as the government kept a certain shareholding of AI, private players did not seem interested.
  • Operational freedom: That’s because the mere idea of government ownership, even if it was as little as 24%, made private firms wonder if they would have the operational freedom needed.
  • Debt sharing: In the past, the government expected the bidders to pick up a certain amount of the debt. This time, the government let the bidders decide the amount of debt they wanted to pick up.

Significance of the deal

[A] From the government’s perspective: A success

  • Disinvestment: It underscores govt commitment to reducing the its role in the economy.
  • Easing burden on taxpayers: This claims to have saved taxpayers from paying for daily losses of AI.
  • Economic reforms: Given the historical difficulties in AI’s disinvestment, or any disinvestment at all this is a significant achievement.

[B] Business perspective: Still a failure

  • Missing the target: Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target of the current year.
  • Unresolved bankruptcy: The assets left with the government, such as buildings, etc., will likely generate Rs 14,718 crore. But that will still leave the government with a debt of Rs 28,844 crore to pay back.

[C] Value perspective: Success for Tatas

  • Business success: From the Tatas’ perspective, apart from the emotional aspect of regaining control of an airline that they started, AI’s acquisition is a long-term bet.
  • Investment boost: The Tatas are expected to invest far more than what they have paid the government if this bet is to work for them.

Conclusion

  • Complete liberalization: The privatisation of Air India is a message from the Government to the markets and global investors that it has the political will to bite the reform bullet.
  • Roadmap for economic reforms: The govt had to shed the “over-conservatism” that is typical of bureaucracy.
  • Future disinvestments: A transaction as “tough and complex” as Air India’s in an open, transparent and competitive bidding process, will boost future privatisation.

Way forward

  • Other loss-making PSUs continue to drain taxpayers’ hard-earned money and get abused and fleeced in the name of social welfare.
  • The govt should imbibe this experience gained in future disinvestment biddings.

 

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