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Letting go
Posted:Jun 30, 2017
 
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While the Narendra Modi government can list demonetisation, goods and services tax, direct benefit transfers, formal commitment to inflation targeting, and enactment of an insolvency and bankruptcy code, among its major reform initiatives, one area where there has been little action is disinvestment. The contrast here cannot be more stark with the previous NDA regime under Atal Bihari Vajpayee, which went the whole hog in outright privatisation, or “strategic sale”, of even profit-making PSUs — be it Indian Petrochemicals Corporation Ltd, Bharat Aluminium, Hindustan Zinc, Videsh Sanchar Nigam Ltd or Computer Maintenance Corporation. It is refreshing in this context to see the Union cabinet now granting “in principle” approval for the strategic disinvestment of Air India, the bleeding so-called national carrier.
 
 
There can, indeed, be no better candidate for privatisation than a company that last reported a net loss of Rs 3,587 crore on revenues of Rs 20,526 crore in 2015-16. It is nothing short of scandalous that since 2011-12, almost Rs 24,000 crore of taxpayer money has been infused as equity support into Air India — and even after that, its domestic market share has fallen from 19 per cent to 13 per cent, while accumulated debts have mounted to around Rs 50,000 crore.
 
 
The question to ask is: What took the Modi government so long to decide on sale of a PSU that is neither profit-making nor serves any strategic objectives? Yes, there are many sectors and routes that private airlines may not find economical to operate, but this can be taken care of through special incentives or subsidies. Likewise, there could be situations requiring emergency evacuations of Indian nationals from warzones. But the government could very well set up a separate specialised company, may be under the Defence or External Affairs Ministry, for such operations.
 
 
The Modi government is apparently planning to invite bids for Air India after hiving off the airline’s real estate assets to a special purpose vehicle, besides de-merging its profit-making maintenance repair and overhaul and ground handling services subsidiaries. That would be unnecessarily time-consuming. It makes better economic sense to sell the entire company, with all its assets and liabilities, after proper valuation. If the liabilities exceed the assets, let the bidder offering the least negative net value be given controlling stake.
 
 
Also, there should be no restrictions on the universe of bidders. A company like, say, Indigo, should not be denied an opportunity to bid just because it already has a 41 per cent share in the domestic market. Any possible abuse of dominant position can be addressed by the Competition Commission.
 
 
 
 
 
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