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Synopsis: Disinvestment of Air India will benefit Indian economy.
Introduction
Recently, the Government of India has successfully disinvested 100 per cent of its stake in Air India, 100 per cent in the low-cost airline Air India Express Ltd and 50 per cent in the Air India SATS Airport Services Private Ltd.
The move reflects the resolve and conviction of the government to revitalise India’s loss-making PSUs by changing their governance model.
Why disinvestment in Air India is a welcome move?
One, Air India has become a loss-making PSU. The airline was losing Rs 20 crore each day with its debt having mounted to Rs 65,562 crore by August, 2021. As a result, it had lost more than Rs 5,000 crore each year since 2016. Its accumulated losses of Rs 70,875.98 crore resulted in the complete erosion of the net worth of the company.
Moreover, it has outstanding employee dues of Rs 1,332 crore as per the Justice Dharmadhikari report with employee benefit expenses being above Rs 3,000 crore each year.
Air India also has a fleet strength of 213 as of August, 2021, and incurs huge costs to maintain this fleet.
Two, Impact of the pandemic on aviation sector. Covid-19 has had a dramatic impact on the aviation sector. A report by the International Civil Aviation Organisation notes that due to the pandemic, the financial losses of airlines across the world have been around $370 billion.
Three, Poor operational structure. Despite the best efforts of governments over the years, the airline’s financial condition continued to worsen in the absence of a competitive operational structure.
Four, ensures a competitive aviation market. While the air ticket fare is already rising, another airline’s exit would have further concentrated power in the market. Moreover, a debt-laden airline only adds burden on the industry, while stretching government finances. Thus, the sale of Air India, which is now to be managed by a more competition-conscious organisation, in a free aviation market, is a welcome move.
Fifth, revival of Air India will be possible only with effective professional management. In this context, the Tatas have a proven history of turning around ventures on the brink of collapse, like Jaguar Land Rover.
How it will benefit the government and Indian economy?
One, the government can now shed its tag of being the arbitrary protector of a bleeding enterprises.
Two, Air India will not pose a further burden on the government’s finances and taxpayers’ money will be put to use in productive asset. For instance, since 2009-10, 1,10,276 crore rupees of tax payers’ money has been wasted on the airline.
Three, the move will help government to disprove the allegations of protectionism which it has carried for the last seven decades, foster fair competition, rid the civil aviation market of distortions, and enhance the opportunity for travel.
Four, this move will also help towards revitalising the limping tourism sector.
Source: This post is based on the article “Air India sale opens up a brighter future for aviation” published in Indian Express on 16th October 2021.
