Grounded in reality

Going by past record, privatization of Air India looks difficult and that of banks is fraught with perils

Apart from the decision of the Modi government to privatize Air India, reports that the Tata group and Indigo have shown interest in purchasing the debt-ridden airline are surprising. Modalities of the sale and valuations are still not clear. Why would anyone want to buy a company with Rs 52000-crore debt is a puzzle. No foreign operator has shown interest. It is difficult to comprehend how any budget air carrier will be able to digest the catch unless it is the attraction of overseas flying rights and real estate. Sliding prices of crude enabled the PSU to make an operating profit in the fourth quarter of the last financial year. The track record of private participation in such sales is disappointing. Two hotels in Mumbai, owned by AI’s subsidiary, were disposed of to strategic buyers by then NDA regime at the tail end of the bear phase early 2000s. The airport property was re-sold to the Sahara group within months at a fat profit despite a two-year lock-in. An investigation by the UPA government into the proceedings did not find evidence of any wrong-doing, confirming the theory that the discovery price is always a function of the prevalent market environment. The Asset Reconstruction Company took possession of the Juhu outfit, which ceased operations in 2010, due to the inability of the new owner to service debt. An auction early 2014 flopped. The Tatas bought 25% holding for a mere Rs 144 crore in VSNL, a provider of international telecom connectivity, and subsequently increased the ownership to 45%. After morphing into Tata Communications in 2008, it could take possession of the 740-acre land, whose transfer had been stalled, in 2001, when it was valued at Rs 6156 crore. HUL got rid of Modern Bread to a PE firm for an "undisclosed amount" 15 years after the purchase. There has been no response from the private sector to schemes such as own-your-wagon and dedicated freight corridors of the Indian Railways.

Privatization is a difficult path for any government, particularly of a developing economy such as India that has assigned the public sector to the pedestal of "commanding heights". Profit-making enterprises have become vehicles to finance fiscal deficit. The 1991 liberalization largely ignored the issue of stake-sale in government entities. The first NDA government set up the disinvestment ministry. Many were listed by parceling off bits and pieces. No government of a developed economy digs oil wells. The thrust on solar energy is paying off. The plan to switch to electric cars over the next one-and-half decade is to keep the commitment of reducing pollution made at the Paris Climate Accord by curtailing consumption of fossil fuels. Elimination of subsidy on petrol and diesel and daily revision in their prices make the oil and refinery sector ripe for complete withdrawal of the government. Entrepreneur Anil Agarwal bought 51% equity in sick Bharat Aluminium Company  in 2001 and nearly 65% in Hindustan Zinc a year later. He is interested in mopping up the residual government stake and why the transaction is not happening is a mystery. Coal blocks are being auctioned without restriction on use for captive consumption. Eventually, the mining landscape should be devoid of government presence as prices are dictated by market forces.

The Make-in-India campaign pivots around private domestic and foreign investment to make defence gear. Banking is a segment that remains firmly in the government’s grip. There was talk of bringing down its stake to 51% to make the behemoths responsive to the market. Setting up of the Board of Banking Bureau to appoint professional heads and capital infusion, though inadequate, have given the impression that there is seriousness in nursing banks to health before their disposal. The bad debt problem of Corporate India and the inability of banks to pass on the interest rate cuts due to risk-aversion have given momentum to the demand to privatize banks. Not all, however, are convinced, particularly so since the revelation in the last couple of quarters that even private sector banks have non-performing assets. Wrong judgement calls, cronyism and slowdown are not exclusive to the public sector. Financial inclusion cannot be left to profit-oriented private banks. The success of the zero-balance Jan Dhan accounts to receive subsidies and Digital India, an important component of the initiative to crush the parallel economy, hinges on the un-banked having accounts. Despite the mounting pressure, the Modi government should refrain from mass-scale fire-sale of nationalized banks and instead focus on putting them back on track by minimizing interference. The Vajpayee government lost election after introducing on its eve a voluntary retirement scheme to slash PSU banks’ flab.

Mohan Sule