If a plane were descending as rapidly as Air India’s market share has in the past two decades, even the best pilot would find it hard to prevent a crash. Despite a famed brand and prized landing slots, India’s flag-carrier has tailspun from a monopoly in 1994 to a share of less than 13% of India’s fast-growing aviation market. The government, unwilling to fund a bail-out whose recurrence is more predictable than an Air India departure time, has decided to throw in the towelette and privatise it.
Selling a heavily unionised carrier with 520bn rupees ($8bn) of debt will be a jumbo challenge. Its operations probably are not worth as much as its borrowings. For the government this will be a case of limiting losses—around 30bn rupees a year—rather than cashing in.
Privatising Air India would be a useful first step towards reducing public-sector undertakings (PSUS), as India calls the firms it nationalised in the socialist decades after independence in 1947. The central government owns 244, whose sales equate to about a sixth of GDP; among large economies only China has a bigger state-owned sector. Over one-fifth have incurred losses for three successive years. Some stopped making stuff years ago, but keep factories open to avoid admitting to their (state-owned) bankers that loans will never be repaid.
Narendra Modi ascended to the premiership in 2014 having opined that “government has no business to be in business”. But ambitious targets to get bureaucrats out of India’s boardrooms have been missed year after year. The government remains a prolific purveyor of everything from earth-movers to fighter jets, sex toys and tea. A few PSUS have been listed, or stakes in them sold to private investors, but government has always remained the majority shareholder, in effect running the firms.
That won’t work with Air India. All the signs are that the government wants an outright sale to give a buyer a chance to run the carrier more efficiently. A sale in early 2018 is mooted. Roping in a foreign rival looks politically tricky. The authorities’ favoured bidder would be the Tata conglomerate, from which Air India was seized in 1953, though it does not seem very keen. IndiGo, an Indian low-cost carrier, has pitched to buy just the foreign operations of its rival. Merely the announcement that it was considering a bid sent its shares tumbling.
If Air India goes, what might be next? The most problematic state-owned firms are a network of 21 banks, which are listed but controlled by the government. Collectively, they account for 70% of all outstanding loans. But inept management and political meddling mean over a fifth of their loans have been, or probably will be, written off (private-sector banks have fared much better). Their ensuing unwillingness to extend further credit has severely harmed India’s economy.
Privatising at least some of them is perhaps the single most effective reform the Modi government could undertake. It has never been mentioned even as a distant possibility. The hope is that if the privatisation of Air India flies, others will follow it down the runway.
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