Cabinet agreeing to privatise AI a big step, but many such decisions have failed to fructify—so hold the champagne.
For many, Air India has been the touchstone by which to judge the government’s commitment to reform. Even after the airline has received Rs 24,000 crore of free government money over the last five years, there are no signs of a sustainable turnaround. What was shocking was that when the UPA approved the so-called turnaround plan, that projected Air India’s market share rising with its revenue growing at over double—yes, that’s right, double!—the speed of its competitors, Deloitte had said it was ‘ambitious’, ‘conceivable in principle’ but required ‘massive reorientation efforts’ and no relaxation in the ‘competitive scenario’—that is, don’t bring in new airlines while the reality is the competition has increased dramatically since then. But, to protect 27,000 jobs and, more important, to justify buying 111 new aircraft for Rs 70,000 crore, the plan was approved. So it came as a surprise when, despite this, the NDA government looked like it was going to give the ‘turnaround’ another shot—Air India’s new chief spoke of how the airline would do well if the banks converted their loans into equity.
To that extent, the Cabinet decision to privatise the airline is welcome, and hats off to aviation minister Ashok Gajapathi Raju and junior minister Jayant Sinha for pulling off the Cabinet approval in the face of obvious pressure. But wanting to sell the white elephant and being able to are two different things—as the aviation ministry put out news of Indigo wanting to buy the airline on Thursday, its share price took a hit. In Air India’s current state, few will want to buy the airline, so a lot will depend upon the sweeteners including wiping off a large part of the debt, generous government-funded VRS, more bilaterals, and so on. How far the government will be able to achieve this will need to be seen.
Both Raju and Sinha have a long way to go before declaring victory. Any journey, it goes without saying, has to start with a first step and the one on Air India needs to be applauded, especially since it could signal privatisation of other PSUs as well in the months to come. But just as empowering RBI to act on NPAs in May, bold as the move was, is not the same thing as resolving them—that could take 180-270 days—it is important to keep tabs on the government’s progress.
A year ago, CEA Arvind Subramanian stitched together, not just a new apparel package, but also the beginning of a new labour regimen. This involved, among others, the concept of fixed-term employment to take care of industry’s need for flexible employment and removing the need for EPFO-deductions for those earning under Rs 15,000 a month. While the last budget talked about extending this package to the leather and footwear industries as well, the fact is the scheme hasn’t rolled out for even the apparel segment. And despite the 2015 budget talking of allowing people to opt out of EPFO and use NPS instead and optional EPFO-deductions for those earning below a threshold, this hasn’t happened either.
UDAY, similarly, was the big hope of the electricity sector and appeared different from earlier bailout packages since, this time around, in return for hefty cuts in interest rates charged by PSU banks, SEB loans were to be transferred to state governments—to that extent, state fiscs would bleed if the turnaround didn’t happen. It is early days yet, but while a large part of the transformation is to take place from a reduction in ATC losses—the targets here are very steep—with very low tariffs for farmers and households, regulators had to do their bit by rationalising tariffs.
Going by power minister Piyush Goyal’s recent talk with state electricity regulators (https://goo.gl/uYxvNb), this could be in danger since regulators are, largely, failing to do their jobs. Apart from the fiasco which has led to Tata/Adani power plants making huge losses—they could fold up if quick action is not taken—and the large number of power plants that don’t even have PPAs, state governments have even begun to renege on contracts they have signed with solar/wind electricity suppliers. As a result, as Goyal said, manufacturers of solar panels are also stuck.
Putting together a pan-Indian agriculture market, to cite another example, in the form of eNAM was a great idea, and had such a market been in place, the current farm distress would be a lot less. But, while the idea was good, eNAM has failed to take off. The fact that the government has managed to get GST off the ground, similarly, augurs well, but it has a long way to go before it can really deliver the goods. In its current form, the rates are too high and too many, and revenue secretary Hasmukh Adhia admitted as much when he said, ideally India should have just one or two rates.
Panning the finance ministry, of course, is unfair since the states insisted on higher rates and multiple ones at that—FM Jaitley walking away was an option but it wouldn’t have helped. The point is that—and this is why holding the champagne on the Air India sell-off is a good idea—to get to the ideal GST, the finance ministry will have to keep goading the GST Council to reduce both the number of rates as well as to lower them; that is, a perfectly good reform remains a work-in-progress until it delivers. Celebrate Raju and Sinha’s success but hold them accountable till they deliver.