Sweetening the deal?

Government open to idea of listing Air India shares

India is all set to sweeten the Air India sale after its failed attempt to put the debt-laden national carrier for sale recently. Will the efforts to list national carrier help?

After failing to get even a single taker for the expression of interest (EOI) floated regarding the divestment of the airline, the Centre is now open to listing ailing state carrier Air India. It is reported that Indian government is exploring options of selling 100 pc including its other strategic assets such as real estate attached to the airliner.

Why the EOI failed?

The EOI was bound to fail from the beginning as too many stringent strings were attached to the deal. Now, the Ernst & Young (E&Y) transaction adviser has submitted a report to the aviation ministry over why Air India failed to attract any bidder.

According to the global management consultancy firm engaged in business transformation, the bid failed due to three selling conditions – government not selling 100 pc; retaining employees for some time; keeping the Air India identity for at least that time- and the fact that Indian carriers were not keen to grow inorganically as the reasons for the Maharaja not getting any buyers.

Even as this report will be discussed threadbare by secretaries and ministers, will listing the Air India meet the same fate as the previous disinvestment effort?

Why the listing?

This would help beleaguered Air India to generate revenues as well as retain control of the airline.

Even as group of secretaries and ministers contemplate on various moves, the state-run Air India bleeds the treasury to the tune of INR 150 million every day. Importantly, the government is seriously pursuing the Air India and aims to fulfill its disinvestment target of INR 800 billion in the fiscal year 2019. This can help the Modi government to increase the budgetary allocations to social sectors and flagship schemes ahead of the General Elections in 2019.

It will be a million dollar question whether even the listing will be successful or not?

Not a Smooth Ride ahead: No doubt the Modi government may go in for hard decision like the National Democratic Alliance (NDA) government under Atal Bihari Vajpayee that disinvested several public sector undertakings. Four strategic disinvestments during Vajpayee’s regime from 1999 to 2004 included Bharat Aluminium Company (BALCO) and Hindustan Zinc sold to Sterlite Industries, Indian Petrochemicals Corporation Limited to Reliance Industries, VSNL to the Tata group and Maruti, despite their track record the future of these companies were good.

Consequently, the BJP faced many uncomfortable questions from Opposition parties and voters over its privatisation policy. And it lost the elections to the Congress-led United Progressive Alliance (UPA) in the 2004 General Elections. Two years back Modi government had announced its decision to privatise state-owned IDBI Bank. Yet, the government is still exploring various ways to sell its majority stake in the beleaguered bank.

Road Ahead: Any deal involving Air India runs the risk of political controversies ahead of crucial assembly elections in three states and the General Elections before May 2019.

The stake for the Modi government is very high as it will be fighting a combined opposition as it has become very clear from the recent by-polls and Karnataka Assembly elections.

Disinvestment in state-enterprises is easier than done. For decades it has not only commanded position in the centralised planning but has been a vehicle of economic development and employment generator and social security provider to millions of Indians.

With salary pending to the staff of the national carrier since May any move to disinvestment and privatise is set to further raise the political temper in a crucial election year. It is to be seen how Modi government will bite this bullet even as the spectre of inflation and global crude oil prices is ballooning, increasing farmers’ unrest even as the opposition party is cementing its unity ahead of crucial polls.