At that time, Air India and Indian Airlines were two different companies and the sale process was initiated only for Air India, which operated only international flights. If memory serves me right, the privatisation proposed in 2001 was a part-sale 40 per cent holding. Since that failed attempt to privatise, we all know the price we have paid as a nation in terms of the drag that Air India has been on the government finances and, of course, the abysmal service quality that most of us experienced.
In comparison, the recently finalised privatisation of Air India is indeed commendable. The government deserves an applause for it determination to go ahead with it – this is even more significant, as it is a 100 per cent sale of the merged entity that comprises the entire domestic and international operations of the carrier. Thus, compared with 2001, this was a much larger sale of a much larger entity.
A true privatisation of a government undertaking has multiple positive outcomes. A government undertaking is often not very efficient in its operations because of the multiple constraints and challenges on account of its government ownership. Privatisation brings in far better efficiency and a better business proposition. On the other hand, a private company is often well-run based on commercial decisions. It ensures better usage of resources for the benefit of consumers.
In this instance, Air India will now be able to better utilise the aviation bilateral rights with other countries. International travelers will, therefore, be able to travel more efficiently to more locations directly, instead of travelling through another country.
The same effect was seen in the financial services sector following the entry of private players – the product and service experience has transformed dramatically in banking and insurance with the deployment of new technologies and product variations.
Another case in point is the privatisation of Maruti, post which the entire auto industry went through a transformation and every Indian could aspire to own a car.
With diminished burden of losses or enhanced profits for the exchequer, privatisation is indeed an advantage for the government. Particularly for Air India, the borrowings were very high and were only escalating by the day. The nation couldn’t have afforded this borrowing cost for long.
With reduced borrowings for Air India, the government will have the bandwidth to redirect its resources to other projects critical for economic development. For example, the much-talked-about privatisation by the Vajpayee government had released considerable resources for the flagship Golden Quadrilateral project. It provided a never-seen-before boost to infrastructure creation in the country.
Often, an exceedingly efficacious initiative entails greater confidence and a renewed vigour to do even better. I believe the enormously successful privatisation of Air India will provide the government with the confidence to drive and implement more such reforms. The huge learnings that the government departments would have had through this privatisation process would go a long way in ensuring that we march ahead on this track with more ease in future.
Further, after experiencing the advantages of privatisation of the airlines, support from the general public towards similar exercises will surely be enhanced. The telecom sector is a classic example where post allocation of spectrum to the private sector, the country’s communication and digital network has wholly transformed. It will be crucial for the government to privatise more of its not-very-well-to-do undertakings for the greater good of the economy and for better services to the citizens.
Another big positive of this privatisation is the impact that it can have on economic growth, infrastructure creation and job creation. The revival of a significant business certainly boosts its entire ecosystem – partner/ vendor business, employees and lenders. It eventually uplifts overall tax collections and the economic environment.
Finally, any significant event such as this privatisation will boost the overall sentiment in the capital markets. Remember the big fillip that our markets had received post the 1991 economic reforms amid a weak economic situation. Also, creative and constructive initiatives do boost the market, as it gets renewed confidence in the broader reforms agenda.
A positive market is extremely important for economic growth – it not only becomes the provider of much-needed equity capital to the industry, but also brings down the overall cost of capital.
The Air India privatisation will be a significant booster dose for not only for the company, but also for the overall economy, industry, markets and for the government to keep pushing the major reforms agenda. Everyone involved in this exercise of privatising a two-in-one Maharaja, the original Air India and Indian Airlines combined, well done!