Air India: Soon after the economic reforms of 1991, the country learned how vital privatization is for the economic development and growth of the nation. Before 1991, they limited the private sector, and much of the power was with the public sector. However, this was not good for the growing economy of India in any way. How? Firstly, it made the public sector very lazy as there was meager competition in the country.
Moreover, many sectors had a powerful potential to grow but failed due to the public sector’s lack of funding and incentive. However, things changed after privatization and globalization were introduced in the nation to fight the economic recession the country was facing during 1991. We often hear companies getting privatized when they fail to perform or when the government sees better incentives in the private sector.
However, no big company was getting privatized in the last few years, making the public sector quiet again. However, the agreement of Air India getting privatized is the topic of today’s article; the government has provided clear evidence of its strong will to bite the reform bullet. This deal of Air India getting privatized will surely help push other tough decisions that the government is keen on taking. What are the Air India deal and everything related to it we will discuss in today’s article?
The Air India deal
However, there is more to this deal which you should know. The subsidiary of Tata Group companies, the Palace Pvt Ltd., won the bid on Friday for Air India and its subsidiary, Air India express. The total request which provided a victory to Palace Pvt Ltd was worth Rs 18,000 Crore. Out of this vast 18,000 crore amount, 15,300 crores will be the company’s debt to the creditors taken over by Tata, while the remaining 2,700 crores will be the cash paid to the government.
According to the deal, the Tata group takes over a fourth of Air India’s total debt. Along with this, the agreement states that the Tata group will have to retain 51% of the company’s stake and keep the company’s 12,000 employees for a minimum of one year. It will also have to stick to the business continuity clause for three years and retain its brand for five years. All this is also part of the disinvestment deal.
How challenging was the deal to crack?
Air India has always been a hard sell for its government due to its colossal losses and debts even after receiving a continuous infusion of funds. Moreover, this process was a nine-month struggle for the officers in the Union Finance Ministry. They had to face several obstacles and had to crack the over-conservatism that is critical of the bureaucracy. This privatization of Air India stamps an essential landmark in the evolution of the Indian economy.
The transaction as complex and challenging as the Air India deal, that too in an open, competitive, and bidding process, will boost the country’s privatization prospects. It will act as a significant contributor of confidence in the bidders across the country, and there will be a fillip as the deal shows the strong ability of the government to close big deals. It will serve as an incentive to other private investors and give new hope to the privatizing process in the nation.
Even during a period when the whole country is battling a highly contagious and fatal virus, the government took the necessary decisions and set the stage for the Indian economy to take a lea and reach new heights as and when the country’s economic activities have resumed. The economy has pedaled its way to the revival. This big disinvestment deal of privatizing Air India in such a period gives high hope to future sales and will help the country make such tough deals shortly, which the government has a keen interest in. They will make these deals to provide a better future for the Indian economy.
What helped this deal?
According to several recently published reports, the keen interest shown by the Tata group was the one thing that led to quicker completion of the deal. The Tata group had a great interest in getting back the airline which it initially operated. The officials involved in this deal said that financial considerations drove them. However, BJP officials said they were happy the airline returned to the group rooted in history and had a legacy. It further creates the whole process of the deal smooth and easy to sell it politically. It is like the national carrier is going back to its original operators.
It surprises everyone that no one from the opposition party Congress or the Left, which are usually against the privatization process and do not support it, has said anything about this disinvestment deal of Air India. Moreover, one former minister of the Congress party tweeted that many loss-making PSUs have been draining the taxpayers’ wealth and getting abused and fleeced in the name of social welfare. It directly points to the need to privatize the loss-making PSUs in the country and therefore supports this new approach of the current government.
The officials have also said that the deal involving the sale of Air India, which came after Moody’s Upgrade in the outlook of India’s rating to be stable from negative, should never be seen in isolation.
In recent months, the government has made many decisions, such as a guarantee to the lousy bank and the willingness to convert its outstanding with private telecom companies into equity, showing that the government is on the track of pushing ahead in sync with the market realities.
Even when the Air India deal was going on, the government felt that the only fate of Air India was its closure if this deal did not conclude. A senior bureaucrat involved in this Air India disinvestment deal said that the government was very supportive. The government was flexible during the bidding, like what the bidding parameters would be. It is the sole reason that there were so many changes to the conditions throughout this process.
There was a strong will from the political side, which stayed throughout this deal to privatize the airline. Had it been a failure, the only way left for the airline would be to close its operations as the reason was simple. It was highly unsustainable for the taxpayers to keep bailing the company out. The company was under a lot of debt and failed to survive; therefore, getting it privatized was the only solution left. The airline now belongs to its original owners, the Tata group. This deal is enormous and marks a new phase of privatization in our Indian economy.
Article Proof Read & Edited By Shreedatri Banerjee