The grounding of Air India 

The grounding of Air India 

Context

Having announced its decision to sell Air India, the government is making arrangements to do so. The move itself has come after multiple efforts by successive governments to resurrect the national airline. Though there has been news of it finally turning in an operating profit under a determined CEO, its debt, reportedly a staggering $8.5 billion, must weigh on the minds of a public drawn into a discussion of its future

When the public sector does not serve the public interest, it becomes a millstone around our necks

The beginnings

It is unfortunate that so iconic an entity, once feistily steered by J.R.D. Tata, has met this fate, but it is not uncommon in the history of India’s public sector.

1950s: Attempt of the trasformation of the economy

To understand this ending we would have to start at the beginning, and that was with the transformation of the economy attempted in the 1950s.

The mixed economy: criticized at the start

By design, the public sector was to exist along with a private one resulting in what had been referred to as ‘the mixed economy’

Neither capitalistic nor communism: To those hankering after institutional purity this was no more than a joke, an arrangement that had strengths of neither full-bodied American-style capitalism nor of out-and-out Soviet-era communism.

We know better now: Half a century later, the Soviet empire imploded and for a brief moment in 2008, the American one teetered on the brink, having been taken there by its vanguard, finance capital.

• We can now see that the mixed economy, combining the public and private sectors, is superior to one located at either extreme.

The Question arises

So if the public sector is a force for the good, why is it that we see Air India, and a section of the rest of the Indian public sector, in so unsound a financial condition?

Public sector was healthy initially

In its early days, the public sector had been quite healthy.

• Under Nehru, India’s economy rose spectacularly and public investment was the principal engine of growth in that remarkable phase.
• As for the public sector as a whole, during the Nehru era its savings had grown faster than that of the private corporate sector. Actually, to an extent India’s public sector had financed itself.

HMT’s initial success

Nehru’s speech at the inauguration of the second plant of the Hindustan Machine Tools (HMT) in Bangalore in 1962 is instructive in this regard

• He congratulated the workers of HMT for having produced a second plant entirely out of the surplus of the first one

Rationale for India’s public sector

In one stroke, this conveys the rationale imagined for India’s public sector at the moment of its conception

• It had been imagined as a source of investible funds for the public purpose
• Underlying this was the belief that the private sector may not generate the necessary surplus, especially if the economy was not first quickened through public investment.

Private sector did well too

It is noteworthy that in the heyday of the public sector, India’s private corporate sector had not done badly at all

• Its investment rose at least much as that of the public, demonstrating that claims of its suppression due to the licence-permit raj are exaggerated
• It is perhaps not known widely enough that in the Nehru era India grew faster than China

What went wrong then?

So if the public sector had such a central role in lifting India out of a morass, why are we where we are today? Why is Air India awaiting the gavel?

The Answer

This has entirely to do with politics.

The Politics using public sector as an instrument for its gain

• Politics underwent a sea change in the second half of the 1960s and with this the de facto status of the public sector was to change
• It became the handmaiden of Indira Gandhi’s attempt to gain absolute control
• Performance no longer counted and the public sector was now validated by its very existence.
• Intimation of the changed policy stance appears in the form of an entry in an ‘Economic Survey’ from the 1980s emphasizing that a large section of employees of the public sector were those absorbed from loss-making units

The case of Air India is symbolic

Lots of substitutes: Today there is no dearth of air-travel service providers in India, and the public airline reportedly has less than 15% market share.

Turnaround in Kerala

Meanwhile, an effort to turn around the public sector has come from a unlikely section.

• The Communists of Kerala, prone to rationalising inefficiency when it suits their politics, have now embarked upon a revival of the State’s public sector undertakings.
• This has met with success in a short time, with at least some loss-making units turning profitable
• The parlous state of public finances may have forced this political party’s hand but the move itself shows maturity.

Conclusion

The public sector would be a jewel when worn in the public interest. When it is not, as was the case with Air India, it turns into a millstone (each of two circular stones used for grinding corn) around our necks.