The Cabinet on Wednesday gave in-principle approval for “disinvestment” of debt-laden Air India, making its intent to sell the debt-laden airline rather clear for the first time. The final modalities, including the quantum of stake sale, would be decided by a group of ministers, finance minister Arun Jaitley said, without elaborating on whether the national carrier will be privatised.
Moreover, over 4.9 million central government employees will start receiving revised allowances, including for house rents (HRA), from July, 18 months after their pays were hiked as per the Seventh Pay Commission’s (SPC) award. The Cabinet approved the SPC proposals on allowances with 34 modifications, a move that will entail an annual outgo of `30,748 crore and give consumption a significant boost.
A nagging drain on the the exchequer for long, the national carrier has a total debt of Rs 50,000 crore and an annual interest outgo Rs 4,500 crore. It is surviving on a 2012 bailout package, under which it has so far received Rs 24,000 crore. While the Centre’s allowance expenditure is pegged at Rs 69,222 crore (excluding defence) in FY18, 7% higher than the Rs 64,677 crore in FY17, the SPC proposals implemented from the second quarter of the year will cost it an extra Rs 23,060 crore in the current financial year.
In fact, the delay in disbursal of the revised allowances has saved the exchequer Rs 2,200 crore a month or Rs 40,000 crore cumulatively since January 1, 2016. However, the government has compensated employees for this a bit with a package that would cost it an additional Rs 1,448 crore annually over what the SPC recommended. The changes were based on the report of a committee of secretaries headed by finance secretary Ashok Lavasa.
As the Reserve Bank of India observed in its bimonthly monetary policy statement recently, the allowances package could pose an upside risk to inflation, which is projected to be 2-3.5% in the first half and 3.5-4.5% in the second half of the year. Private consumption growth had decelerated a bit in the final quarter of last fiscal and analysts see an incipient pick-up in spending.
The SPC recommended abolition/subsumation of 107 of the 197 allowances at present. The government, however, decided not to abolish 12 of the 53 allowances that were recommended to be abolished. But it approved a raise commensurate with inflation; so fully DA-indexed allowances such as transport allowance were not given any raise. Allowances not indexed to DA were raised by a factor of 2.25 and the partially indexed ones by a factor of 1.5. The quantum of allowances paid as a percentage of pay was rationalised by a factor of 0.8.
The SPC’s proposal for a reduction in the house rent allowance to 24% of basic pay for cities with a population of 50 lakh and above, 16% (5-50 lakh) and 8% (5 lakh) from 30%, 20% and 10%, respectively, was approved. However, as reduced HRA might not be sufficient for employees falling in lower pay bracket, floors of Rs 5,400, Rs 3,600 and Rs 1,800 have been set for the respective category of cities. This will benefit more than 7.5 lakh employees belonging to Levels 1 to 3. Besides, a new paradigm has been evolved to administer the allowances linked to risk and hardship.
“The pay commission had also recommended that HRA rates will be revised upwards in two phases to 27%, 18% and 9% when DA crosses 50% and to 30%, 20% and 10% when DA crosses 100%. Keeping in view the current inflation trends, the government has decided that these rates will be revised upwards when DA crosses 25% and 50% respectively. This will benefit all employees who do not reside in government accommodation and get HRA,” the government said. In the 2017-18 Budget, the government has not explicitly provided for additional costs to be incurred after implementation of the revised allowances under CPC. The officials are confident that the additional burden on the exchequer would be largely be met from savings from allocations made to various departments for the year.
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On June 29, 2016, the government accepted the pay- and pension-related recommendations of CPC for over 10 million central government staffers and pensioners, entailing additional cost of Rs 84,933 crore in 2016-17. The pay panel had given an overall 23.55% increase in pay, allowances and pensions, including 16% pay rise, 63% surge in allowances and 23.6% increase in pension.
As for the Air India disinvestment, official sources had told FE earlier that the government had firmed up a plan to exit the loss-making national carrier, involving the write-off of roughly half of its estimated liabilities of Rs 60,000 crore, with a possible haircut by banks reducing the cost of the exercise to the exchequer. While the write-off is of the carrier’s liabilities not backed by assets, the government might also have to incur an expenditure for the settlement of the sovereign-backed part of AI’s aircraft loan of about Rs 21,000 crore, they had said. A third of the carrier’s aircraft loan is guaranteed by the government.
They had added that lenders to the carrier have in informal talks with the government expressed their willingness to negotiate with the government on how to settle the AI loans including re-setting interest rates to accommodate the government’s plan.
The civil aviation ministry had internally made a rough estimate of the value of AI’s physical assets at around Rs 25,000-30,000 crore. These assets included its 115-strong aircraft fleet (including Boeing Dreamliners), land parcels, buildings and also its valuable flying/landing rights and parking slots at airports across the world. The government could quit AI by end-March 2018 and transfer it to a new private-sector owner. Besides resolving issues related to the airline’s debt, the government would also have to take a call on whether to retain a minority stake in it.
Last month NITI Aayog in its report recommended the divestment of Air India by hiving off its profit-making subsidiaries initially.
In FY16 the national carrier reported an operating profit of Rs 105 crore for the first time after the merger with Indian Airlines. Net losses were reduced to Rs 2,636 crore. The carrier is expected to make an operating profit of Rs 300 crore in FY17. As of now Air India has 12000 employees and has started to hire pilots on contract. It is also expected to add 85 new planes its fleet size by 2020.