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Saturday, July 21, 2018

Why is Air India being singled out for step-motherly treatment

Air India’s whole package is worth over 5 lakh crores and not Rs 20,000 odd crores the government wants to hawk it off for. The hungry vultures of privatisation have been salivating over it for two decades now

Written by Manish Tewari | Published: July 4, 2017 12:59:26 am
air india, air india privatisation, air india services, govt air india, india news, indian express news The agitation over privatisation of Air India needs to be viewed in a larger context, and contextualized in terms of the contemporary divide that has been scorching the private sector, that is over the question of mergers and acquisitions.

In colloquial Hindi there is a ribald saying – “Garib Ki Joru Sab Ki Bhabhi “ – which while it defies literal translation, points to the helmsmen of a sputtering economy who have suddenly woken up and now want to burnish their neo-liberal credentials. The easiest mark to pick on is none other than the national airline, Air India. An abused child whose parents keep turning on it periodically.

The in-principle Cabinet approval for the privatisation of Air India begs a fundamental question that policymakers as well as the gurus of privatisation have failed to address in the past 26 years : Does Privatisation Serve the Public Interest?

To answer this question one must go back into the genesis of the current phase of the “grand garage sale” of public assets callously bartered away to oligarchs for nothing more than a song accompanied by the mocking melody, “It is not the business of government to do business”.

It all began with the Conservative Party in Britain in the 1970s. The Tories had long been obliged to undertake some process of de-nationalization. In response to the protracted political crunch in which the Tories struggled to maintain their parliamentary numbers, the Ridley report, written by one of their MPs, Nicholas Ridley, recommended a policy of breaking up the public sector and dismembering unions.

Privatisation was at first subordinate to other policy themes, the most prominent being wage suppression to control inflation. In Ridley’s assessment, trade union muscle in the UK was meddling with market forces and triggering inflation, which therefore had to be checked to restore the cost-effectiveness of Britain. He and other Conservative MPs also saw it essential to neutralize the power of unions in the wake of the collapse of the Edward Heath government, as a consequence of the strike by coal miners in 1974.

In 1979, soon after she became prime minister, Margaret Thatcher proposed denationalization as a potential panacea to the recession that followed. The guiding canon was that privatisation would make the large utilities more productive — a euphemism for profit — thereby making English capitalism competitive in comparison to its continental counterparts.

The first Thatcher government privatised several large public sector companies, namely British Aerospace, Cable & Wireless, Jaguar, British Telecom, Britoil and British Gas, thereby commencing a wave of privatising core utilities around the world.

This bizarre belief in privatisation soon became a global pandemic. Throughout the world, governments ceded to the oligarch’s control of everything- electrical utilities, prisons, railroads and even education systems. Soon, sales of state owned enterprises worldwide had totaled over $185 billion—with no signs of stopping.

In the year 1990 alone, governments sold $25 billion in state-owned enterprises. The largest single deal occurred in Britain, where investors paid over $10 billion for 12 provincial electricity firms. New Zealand sold more than seven state-owned companies, including the government’s telecommunications company and printing office, for a value that topped $3 billion.

Emerging economies were quick to jump on the privatisation bandwagon, usually to align them with the neo-liberal economic order but at times also to raise revenue. Argentina carried out a major privatisation exercise that included among other things the sale of its Telephony, national aviation and petrochemical companies for more than $2.1 billion. Mexico’s did the same to reduce the size and operating cost of the public sector that brought a windfall of $2.4 billion.

Over the next decade, privatisation was at the top of the economic agenda of Russia and the newly democratized countries in Eastern Europe. Public assets were virtually gifted away to all shades of robber barons. In 1990 alone, the Treuhandanstalt—a public trust mandated by the German government with the task of privatisation, arranged the sale of more than 300 companies for approximately $1.3 billion.

However all this wanton play with taxpayers money led to intense introspection when the worldwide revolt against globalization reached a crescendo in the wake of the great economic meltdown of 2008. By then it had become evident that widespread privatisation and private ownership of public enterprises did not necessarily translate into improved efficiency or even better quality of public service.

Most importantly the Arbitrage, Derivatives and Leverages driven economic catastrophe established that private sector managers have no compunctions moral, ethical or even legal about pursuing mindless profit-making strategies and corporate practices that eventually brought down the global financial system itself.

Dominant in the privatisation debate has been the appropriate role of government in a social democracy. The Laissez-Faire school views governments as an unwarranted and inflated encumbrance on an otherwise effectual systems; while critics believe that government is a critical component in a system in which profit cannot be the only objective. The dispute is not just whether ownership of a company is private or public. Rather, the right question to ask is, can capitalist potentates act in larger public’s interest –something fundamentally against their ilk.

Thus the agitation over privatisation of Air India needs to be viewed in a larger context, and contextualized in terms of the contemporary divide that has been scorching the private sector, that is over the question of mergers and acquisitions.

Just like mergers and acquisitions, privatisation involves the displacement of one set of managers entrusted by shareholders—the citizens—with another set , who may answer to a very different set of shareholders whose only overbearing desire would be to strip Air India of all its value and worth if that helps them to profiteer leaving it as a ghost of a company in the process. This is what the reckless disinvestment of the erstwhile NDA years did to many Public Sector Companies between 1999-2004.

What is the gravest charge against Air India – that it is not profitable and it is being crushed under a mountain of debt to the tune of Rs.52, 000 crores? The first allegation is untrue. Air India made an operating profit of Rs 105 crore and a net loss after tax of Rs 3,836.77 crore in the 2015-16 fiscal. In the current year, Air India is projected to earn an operating profit of Rs 300 crore and net loss after tax of Rs 3,643 crore.

This is what the Junior Minister of Civil Aviation Jayant Sinha told the Rajya Sabha in the recently concluded budget session, further adding that there was no proposal to either disinvest or privatise the national carrier.

A profound then query arises – what has changed between the end of March 2017 when the Rajya Sabha was given this written reply and now? What is the deal and with whom?

As has been argued and reiterated by Air India ad-nauseam, the decision to buy new aircraft or merge both Air India and Indian Airlines was of the then UPA government. The fact that it did not work out as intended is not the fault of the Airline or it’s employees and they cannot be penalized for it.

The next argument in favor of privatisation, that the private sector knows how to run Airlines, is also warped. Each time an Air India-type company manages to stay afloat despite efforts of successive governments and managements to run it into the ground, two private airlines have failed in India since the skies were opened in 1992. Few would remember that the first private airline was East- West. It went belly up. What happened to Air Deccan and Damania Airways? Then there is Kingfisher Airlines – the king of good times whose promoter Vijay Mallya ran away with the salary of his own Airline employees and is living it up in London.

If Privatisation is the panacea of all problems then why doesn’t government outsource municipal functions for our cities are? Why doesn’t the government privatise the Railways for even the New Delhi Railway station is more often than not in a worse condition than a slum?

Why is Air India always picked upon, considering it is still a pot of honey over which hungry vultures have been salivating over for two decades now. It has prime real estate across the world, prestigious parking slots at every international airport, bilateral rights, fifth freedom rights in some cases, profitable and even subsidiary companies. The whole package is worth over five lakh crores if properly valued and not the 20,000 odd crores or even much less that the government wants to hawk it off for.

If Prime Minister Modi or his Finance/Defence Minister indeed want to professionalize the Airline and liberate it from the tyranny of the Civil Aviation Ministry they should first write off Air India’s debt once and for all. If banks are ready to forgo a substantive part of the 6 lakh crores lent to private companies that have become Non Performing Assets, why is Air India being singled out for step- motherly treatment?

The government should ask financial institutions to pick up equity in Air India, like private companies have done with the company that owns the Goods and Services Tax Network (GSTN). Third it should put a specialized board and management in place. Air India can be turned around as a sterling public-private enterprise. You do not need to peddle family silver to some carpetbagger.

Manish Tewari is a lawyer and a former Minister in the UPA government. He serves as a Distinguished Senior Fellow with the Atlantic Council based in Washington DC). He tweets @manishtewari

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