Lesson from Air India sale: Do more by doing less

News: Air India’s sale is important for three reasons priorities, resources, mindset. It is a template for the Indian state to do more by doing less.

What are the reasons that make the Air India sale important?

Priorities: Public commercial enterprises do not perform well in Human resource efficiency. Air India had 12 trade unions and employee cost was as high as 20% of the revenues.

The state’s job should be to maintain security, family healthcare, education, justice delivery, etc. Activities in which the private sector can do better should be left with a private sector.

Resources: In 1953 Hungarian economist Janos Kornai pointed out that state firms indulge in “investment hunger”, they don’t fear losses because they know they will be bailed out. For example, Air India costs the government only Rs.2.5 crore to buy. But it has consumed Rs 1.1 lakh crore since 2009. Kornai termed this as a soft budget constraint.

Even Supreme Court termed Air India’s acquisition of 111 planes in 2007 as excessive. This resulted in the loss of Rs.20 crore per day.

Mindset:  The “fatal conceit” represented by Air India’s seven-decade tragedy suggests that India need a better role balancing between the three pillars of team India — private, public, and nonprofits.

What India should learn from other countries?

China: China converted over two-thirds of its state-owned enterprises to private ownership under its various leaders. China is considered powerful because of a $14 trillion GDP fueled by private entrepreneurs, foreign investors, and multinational companies. It today accounts for half of Asia’s military spending

Even, the top ranks of  Norway, Sweden, and Finland in government spending are because a share of GDP is financed by their private efficiency. Hence, the government should further divest the remaining 360-plus central PSU’s. Given state finances after the pandemic, privatizing over 1500 poorly run state PSUs could ease the financial burden.

Source: This post is based on the article “Lesson from Air India sale: Do more by doing less” published in Indian Express on 27th January 2022.