Air India divestment: a giant leap


The Tatas having been declared successful by Air India, the national carrier finally returned home to its original address. Interestingly, in hindsight, this divestment proposal was actually initiated by the Vajpayee government in 2000-01, when attempts were made to re-privatize the Maharaja.

The airline founded by JRD Tata in the 1930s made its first domestic flight from Mumbai to Trivandrum. In 1953, the Indian government passed the Air Corporations Act and took over the reins of the airline to the chagrin of the pioneers of the aviation industry.

The Vajpayee government’s efforts to re-privatize the airline finally saw the light of day with the Center relinquishing control and announcing the landmark deal in October 2021 and declaring Tata Sons Pvt. Ltd as the new official owner of the Maharaja.

The movements of the Vajpayee government

The Vajpayee government strongly believed in the gradual withdrawal of the state from non-strategic areas. He believed that the government was giving up its proactive role in economic development and was instead a facilitator in providing a favorable business environment for investors. Now that dream has come true with the airline company finding its new, albeit original, address.

At this stage, it is important to recall the recommendations of the Ramakrishna Committee in 1998 which suggested the divestment of Air India during the previous NDA government. Somehow, so-called national pride delayed the process, leading to the accumulation of colossal debt for the airline.

With the current government in power also being convinced that “the government has nothing to do in business except in strategic areas”, it is essential that the nation now focus on divestment in certain sectors such as hospitality etc. . where human contact is crucial and can be better managed by the private sector.

Of course, this groundbreaking deal drew its fair share of criticism on the pretext that: is it fair to sell the family silverware or the so-called national symbol of the country?

Always a national pride

However, it is important to keep in mind that whoever owns the airlines, this would continue to be national pride – perhaps best shaped in terms of service and efficiency, the result of the efficiency of management of the Tatas with its proven track record of successfully managing Vistara and Air Asia.

More importantly, with the government’s borrowing burden to finance Air India’s colossal debt being greatly reduced, it would not be a burden on taxpayer dollars.

To put it in perspective, as of August 31, 2021, the airline was under a mountain of debt of 61,652 crore, including Tata Sons holding company, Talace Private Ltd. is to assume 15,300 crore, while the balance 46,262 crore will be taken over by Government’s Air India Asset Holding Ltd (AIAHL). In addition, the Tata Group will also donate 2,700 crore in cash to the government.

Plus, with the nation suffering from the onslaught of the pandemic, there could not have been a more ideal time for Air India’s divestment. From the government’s perspective, it would have been too burdensome to bear the growing financial loss that has also occurred against the backdrop of public revenues affected by the pandemic.

A boost to renewal

Directing taxpayers’ money towards Air India’s losses and depriving funds for social protection measures as well as infrastructure projects for a country that is at the junction of economic recovery would have been a criminal injustice to the great public.

Another point to note is that through this much anticipated divestment, the government has signaled its intention to move forward with its economic reform program.

With a few PSUs already pending for divestment, following the sale of Air India, the government should now do everything possible and focus on its divestment strategy, as outlined in its 2021-2022 budget announcement.

The landmark deal once again highlighted the Modi government’s aggressive reform agenda and helped build confidence among domestic and foreign investors. While macroeconomic indicators are already pointing to an economic recovery, the completion of Air India’s divestment has given a boost to the entire economy and will only strengthen the country’s trade and economic prospects.

Additionally, Tatas being the successful bidder provided a positive vibe on both the economic and government fronts.

Soften the Fed’s taper

Additionally, last but not least, now that the government is back on the reform path, it could get foreign portfolio investors to rethink the potential of India’s capital and domestic markets, especially following the adoption by the Federal Reserve of key rates. hike in about a year.

With renewed confidence instilled in the government’s economic policies and program, and with investors all positive about the Indian economy, this could help minimize the downside of the shrinking effect. Proportionally, the risks of damage to the national economy due to the likely collapse of the capital market, the depreciation of the rupee, the widening of the current account deficit and the rise in crude oil prices could diminish.

Now is the time for the government to move forward with concrete economic action in all directions and to work quickly to realize its dream of a $ 5,000 billion economy.

Shettigar is Professor and Misra is Assistant Professor of Economics, Birla Institute of Management Technology, Greater Noida


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