After a strenuous three-year battle with political fate, the group has withdrawn from its ambitious airline project because the government would not demur. The Foreign Investment Promotion Board kept postponing the group's application, and the government was considering setting up yet another expert committee to evaluate the proposal. This after four different governments have failed to decide whether to allow the country's largest private sector group to enter a vital service.

The Tata group decision comes weeks after it decided to pull out of an equally ambitious airport project that would have transformed India's information technology capital, Bangalore. The reason for the pullout, once again, was the government's silence.

The Tata group move, assuming that it puts the lid finally on the project, raises crucial questions on private investment in sectors that can feature competitionwith services run by the government.

Two factors have officially influenced the government's dithering: the haziness on foreign holdings in Tata Airlines Pvt Ltd, and the consequence the airline would have had for Indian Airlines, the government-owned national domestic carrier. Clearly, the government feels that its hold over crucial aviation services will be compromised in some way if foreign investors are allowed in the sector, and that Indian Airlines will not be able to compete successfully in a tighter market situation.

Yet, the same government is considering privatisation of Indian Airlines, proposing disinvesting majority stake in the corporation. Clearly, the government does not operate as a single, focussed interested policymaker, but its final policy expresses the balance of a number of conflicting opinions and pressures. Indian Airlines has traditionally been an inefficiency-ridden fiefdom of a section of the bureaucracy and ministers. It has been a plum posting, and a good area of influencefor powerful people. It has been a refuge taken for granted by hundreds of employees, and their Godfathers in the bureaucracy.

There are others in government who know that control over Indian Airlines is expendable, that the funds that divestment of it can yield can considerably help the government shore up its fortunes. The second lot are less involved with Indian Airlines and more concerned with managing the government itself, witness industry minister Sikander Bakht's bewilderment at all the opposition to foreign equity in airline companies. But the God of Small Bureaucrats disposes of macro-concerns with ease.

It is not as though private investment has not taken place in areas that were erstwhile monopolies of the government. Reliance Petroleum, Essar Oil, Mangalore Refineries have got off to starts in the oil and gas sector. Power companies have started feeling around, even though apart from Dabhol Power Company none seem comfortable. PSU executives have realised that better opportunities abound,they have flocked to head private sector operations. In a certain way, the private sector has moved to create vested interest for the public sector personnel and bureaucrats in new projects.

How does the Tata experience with its airport and airline projects add to the general theory of the might of the small overpowering the concerns of the big in blocking private sector investment in areas where the government has slipped from commanding heights, but still continues to command?

In the initial flush of liberalisation, a number of other smaller private airlines had been set up, and with the exception of Jet Airways and Sahara Airlines, they have more or less either gone out of business, or are operating on small scales, virtually unrecognised outside their incognito routes. This is because the directorate general of civil aviation had intervened in the cut-throat competition they indulged in early on, and clamped down in a way that stifled the business itself. The result: while for a while you could walkinto the airport and pick up a Mumbai-Delhi-Mumbai return ticket, these days, you have to rely on your Indian Airlines baboo contacts. The God of Small Bureaucrats triumphed in the first round of liberalisation.

It is surprising that even with the hindsight of this first round, the Tatas did not choose their route carefully. First of all, their hat landed late in the ring, by which time the Indian Airlines vanguard had struck back at reform, and managed to retain hold over the establishment. Second, they made the cardinal mistake of trying a policy potshot: by straightaway proposing a foreign equity tie-up, it virtually prompted the Indian Airlines screams of panic. Surely, if the second option of having SIA around as technical collaborators was acceptable, it would have been more politically correct to try that option the first time around.

Third, the group clearly has an enormous collective ego, that does not permit it to put its business above everything else. Remember Enron Corporation and whatit went through on the Dabhol Power project? The Maharashtra government tore up a sealed and signed power purchase agreement, accused them of bribing, and there was an abusive statement a day from the political circles. Enron did not withdraw. It returned, powerfully renegotiated the deal, re-signed virtually the same PPA with cosmetic changes, and the Maharashtra government itself told the Mumbai High Court during a later case that its opposition had been entirely political. The Tata group has been put off by three years of inaction, but the last few episodes, after the group gave details on the institutions it has roped in to finance the project, have lasted just a few months! In fact, the Tata group has in this respect acted much like a MNC, say like Bell Canada, that can show its ire at an emerging market by pulling out of a project, simply because it already operates on a huge base elsewhere around the world and at home. It has shown an inability to understand that tremendous political instability doesnot allow loaded questions like foreign equity in aviation to be answered as straight and as quickly as the group clearly desires.

What this experience adds to the general theory, therefore, is that the private sector group must recognise that change is inexorable even within the seemingly immovable government, and that there are forces of change, but the God of Small Bureaucrat still has a lot of powers, and can throw spanner after spanner in the works of progress. The idea is to create a situation that is comfortable for those sections: those that look at private investment as succour for the economy, and those that look at private investment as succour for themselves. This can be done through political sagacity, and restraint.

The government has no doubt been shown up in the worst light in the affair: as a helpless giant in the hands of small ant-like men whose sole concern is to gather their little mouthfuls together for their personal winters. But the Tata group has also disappointed by beingout-of-sync with politics, with its impatience and finally, with its petulance.