Beware of air pockets

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Just ahead of unveiling of GST, the biggest game-changer for economy, at the midnight stroke on Friday, the Narendra Modi government cleared stake sale in the national carrier Air India on Wednesday. Reporting staggering losses for years, Maharaja has been surviving on the bailout package of Rs 30,000 crore provided by the UPA in 2013.

It was just a matter of time for the government to kick off the big bang divestment, what with the target for PSU sell-off set at Rs 72,500 crore for this fiscal. The move augers well at a time when, despite robust growth rates, growth engines are slowing down in realising NDA’s electoral promise of huge job creation.

Undoubtedly, it is rather a daring step by the Modi government, given that the NDA had to back down on selling 60 per cent stake in Air India and 51 per cent in Indian Airlines way back in 2000. But it is happening now, as the government is armed with an unprecedented mandate from the people in 2014 and the time also seems ripe for it.

Naturally worried over their fate, the employees union urged the government to waive Rs 30,000 crore loan and give a chance to management to turn AI around. They are rightly anguished that huge losses were due to hasty decisions and wrong policies of governments such as purchase of 111 aircraft and surrendering of profitable routes to private carriers.

But such a gesture would foil government efforts to keep fiscal deficit on a tight leash. Bailing out AI would make it impossible to meet the 3.2 per cent target for fiscal deficit for FY18 and less than 3 per cent in later years.

Last year only, the deficit was brought down to 3.5 per cent. Besides, Air India is in an irredeemable situation. With a fleet strength of 107, it is reeling under around Rs 52,000 crore debt. It is stated that the annual payout for around 25,000 employees as per the 7th Pay Panel would alone amount to an outgo of Rs 30,000 crore effective from 1st July.

It may be recalled that the CBI launched a probe in May to look into how the merger of AI and IA in 2011 and the buying spree with Rs 70,000 order for 111 aircraft, along with loss of profit-making routes, cost the exchequer hugely. But the employees must be paid all dues in time with a decent severance package, if any.

Lastly, the government should not be seen as handing AI on a platter to private parties. Modi’s reputation, on which rests NDA survival, depends on how best his government monetises Air India assets like fleet, bilateral flying rights, infrastructure and subsidiaries like profitable low-cost carrier Air India Express, Air Transport Services, Hotel Corporation of India etc.

AI sale sans its arms may hardly find any takers. Government must allow global players in bidding so as to get a good valuation. This is imperative as it would set a precedent for next wave of PSU sell-off, starting with banks whose recapitalisation the government is hardly able to fund.