Air Transport World

Privatization, 'Indian style.' (airline industry)

BOMBAY--For the past 40-odd years, the public sector has burgeoned unchecked in India. During the 1980s, the pace quickened to unprecedented levels as more and more private-sector enterprises went "sick" and were taken over by the government. During the first haft of the decade, public-sector investment went up by 260% and in the second haft by 250% more.

Starting with the takeover of private airlines back in 1953 and merging them to create two autonomous statutory corporations, Air India (international) and Indian Airlines (domestic), the government tentacles have spread through every industrial and commercial activity. Not content with "capturing the commanding heights of the economy," to use British Socialist Aneurin Bevan's memorable phrase, the government went on to capture large chunks of it and institutionalized central planning, only to find itself with a millstone of loss-making enterprises by 1991. Instead of enriching the Treasury as was intended, the public sector drained it unremittingly.

At last count, government investment in 246 enterprises of all types was estimated at 1.1 trillion rupees ($43.5 billion). In addition, the states have either taken over or set up scores of their own enterprises, few of which have been run successfully.

In fact, the return on investment of the entire public sector has been less than 1%. In other words, huge sums of public money that India could ill-afford have gone down the drain.

In early 1991, when foreign-exchange reserves ran dangerously low and the economy was near collapse, the government had no option but to rush to the International Monetary Fund and the World Bank. The bloated public sector inevitably became one of the prime candidates for the chopping block. The reform package included liberalization and privatization of the public sector.

However, the government is finding no less difficulty in abandoning its Socialist moorings. So far, only a few hesitant steps toward privatization have been taken. This hesitancy is best illustrated in the policy pronouncements about the airline industry in the last four years.

In October, 1991, Minister of Civil Aviation Madhavrao Scindia told a press conference in Bombay that a plan was being finalized to "unload a portion of its [government's] equity" in Air India and Indian Airlines. The proposal was to offer 2540% of the equity to the public, including employees.

This, he felt, would make the two airlines more accountable and efficient. At the same time, he went on to reassure the trade unions. that this was not privatization and that the government would retain full control, Indian-style, of the two airlines. …

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