Air India is a reminder that government should not dilly-dally on tough decisions
Finance minister Arun Jaitley recently hinted that the government was open to selling its stake in perennially loss making national carrier, Air India. This is not the first time that partial divestment or complete sale of Air India has been suggested.
So far, all those suggestions, which at one time made news headlines, did not go beyond them. One, policymakers realised that even if the government was ready to sell its stake, there might not be a suitable buyer for Air India. Besides, there was the issue of patronage attached to the airline, which made it an important asset for the political class.
Forget the legacy issues, which is a big trouble spot for Air India. Given the operational matrix for the industry as a whole and Air India in particular, the government is unlikely to be find a buyer from within the airline industry, whether domestic for foreign.
In a given condition, if the government is serious, there is only one option left with government — take a one-time hit on debt, and then improve its efficiency on key parameters. That would help to begin negotiations with potential buyers. The price point should be one that would help the buyer to make some earnings.
The developments in Air India should serve as reminder to the government that dilly-dallying on tough decisions pertaining to divestment of public sector undertakings will eventually lead to the kind of erosion of value where the government will make them unviable and also be unable to shut them down.
What happened at IDBI bank is another example of what a delay means to the value of government stake. Eighteen months have passed since the government announced its intention to bring government stake in IDBI below 51 per cent. Some private equity funds had shown an interest in picking up the stake at that point of time. But nothing has happened and with every passing quarter, the non-performing assets in the bank has been rising. Probably, the bank will soon require another dose of capital from the government. So, by delaying, things have gone from bad to worse as far as the government is concerned.
Our policymakers need to realise the fact that the government has no business of being in certain businesses. What would the government achieve by running a company which makes three wheelers or for that matter telecom equipment that does not find buyers?
The fact is that even today a large number of PSUs are nothing but an extension of certain ministries which use them as vehicles to park sundry costs that cannot be shown as expenditure. The assumption that because this government is efficient, it can revive sick PSUs so that they can divested later is a wrong notion which is just postponing the problem for some years. Indeed, after three years of this government, strategic divestment is one area where it has not been able to deliver on what was expected.
The fact is that a few years down the line, political interference will come to haunt them and they will return to the same old loss making ways. Policymakers should look at either completely shutting down loss making PSUs or selling them to private players who think they can either turn them around or extract value out of them by selling them in parts. Given the fact that today there is demand, both for Indian paper and also to own Indian assets, government would do well if they show urgency in selling such PSUs. For companies which are listed, it is easier to reach valuation. In the case of unlisted companies, the government can use the auction route and invite bids from private players, which would ensure that in future no finger is raised by any regulator or investigative agency against the sale.