Fly Away Now

Jayant Sinha, minister of state for civil aviation, is confident (that) Air India disinvestment will be completed by the end of this year. This will be a welcome development if it happens and marks a milestone in rethinking the role of government in business. Given its role in making policy and crafting regulatory architecture, government has no commercial role to play in a competitive sector such as civil aviation. Moreover, mismanagement has led to scarce public resources being earmarked for a struggling airline. This must end soon.

Air India has received from government Rs 26,545 crore as direct equity support over the last five years. The result has been under whelming and the airline recorded a net loss of Rs 3,643 crore last year. At a time when Indian civil aviation has boomed in terms of passenger traffic growth, Air India lost market share over the last three years despite having the biggest fleet of aircraft. Given this context, the best thing possible is for government to cut its losses at the earliest and use its resources in areas such as education and healthcare.

One hurdle to early disinvestment appears to be the Rs 48,877 crore debt in Air India’s books. However, this is not as daunting a challenge as it appears at first sight. Around 64% of the debt is working capital, or money needed to fund its everyday operations. Also, government is open to the idea of breaking the airline along its operating arms to facilitate the disinvestment process. These aspects make it possible to conclude the airline will be disinvested soon, which will not only burnish the Modi government’s reformist credentials but should also lead to the disinvestment of other public sector white elephants – reorienting government endeavour to areas where it is really needed.