Disinvestment of Air India: Private sector wanted it, not the government

S Mohammed Irshad
S Mohammed IrshadJul 03, 2017 | 17:51

Disinvestment of Air India: Private sector wanted it, not the government

Disinvestment of public sector companies is still an unfinished agenda of the central government, no matter which party rules the Centre.

The last 26 years of liberalisation and privatisation have proved that disinvestment is not a simple job. The common man in the country never expected during the early period of 1991-92 that one day he would lose access to public goods. He never expected that Modern bread company would become a private firm and that he would have to pay for essential public goods.


Though PM PV Narasimha Rao and then finance minister Manmohan Singh initiated the project of larger transformation of the economy, they did not have a full operational plan. It started gradually, and moved on to building consensus with political parties and not necessarily with the public.

Disinvestment was initiated in 1996 by the United Front government. The first proposal came out as a committee constituted by the ministry of industry to look into the possibilities of disinvesting public sector companies.

Many of these companies were enjoying market monopoly at that time and were playing a vital role in infrastructure development of the nation.

It is mentioned that “the commission while advising the government on the above matters will also take into consideration the interests of stakeholders, workers, consumers and others having a stake in the relevant public sector undertakings” - (quote from the disinvestment commission’s Report IV in 1997). 

A close assessment of disinvestment since 1991 proves that governments at the Centre hardly cared for the interests of workers, consumers and others having a stake in the public sector units. A consumer of Modern Food Industries, a company which offered better quality bread at an affordable price, never wanted it to be privatised.


Getting larger public support for disinvestment is still a challenge.

Disinvestment started along with economic reforms in 1991, but it was a long process to start with. The Government of India’s disinvestment commission of 1997 came up with different volumes of reports.


Its Report IV said that though disinvestment had been going on since 1991, lack of proper public awareness and consensus had, among other things, definitely hindered the progress of disinvestment.

While there is widespread dissatisfaction among the public about the poor performance of a large number of PSUs, there is insufficient recognition that disinvestment could be the corrective action to tackle this problem. Getting or seeking public support is still not done in disinvestment procedure. One of the economic rationales behind disinvestment was to reduce the budget allocation for public sector companies and spend the money for other welfare projects. No government document so far explains how welfare is possible without institutions. 

Though the Congress initiated the project of privatisation, the BJP is more active in privatising public sector companies. Some of the major disinvestment of public sector firms happened during NDA-I. There was a separate ministry of disinvestment led by Arun Shourie to ease the process of disinvestment.


BJP’s nationalism is, ironically, never seen when it comes to transferring public resources to the private sector. They neither oppose nor stop disinvestment.

Disinvestment of Air India

The disinvestment commission report carried the names of companies to be considered for disinvestment in the first list in September 1996, and among them Air India was the first, followed by Bharat Aluminium (BALCO).

BALCO’s privatisation is already complete, and AI’s has been pending. There were 40 public sector companies in the list, including Oil and Natural Gas Corporation. The second list was out in March 1997 and named 10 companies.

The last 25 years of disinvestment prove that growth and expansion of the private sector are the deciding factors behind disinvestment. For instance, the disinvestment of Modern at less than the market price happened only because a foreign company wanted to expand its India operations. It was big profit to the company. The government sold the entire infrastructure and market to private companies. It beefed up their profit at the cost of public access to better quality of bread. Air India is the latest example.

The Economic Survey 2017 made it clear that AI should be privatised and it had been pending for long. The delay is actually the delay in the emergence of a private airline sector. There will be competition for taking over Air India in the present context of privatization of aviation. It is primarily infrastructure and connectivity that it offers.

The declared Rs 55000 crore loss is nothing compared to the huge infrastructure assets of AI. This asset value is never considered in the loss assessment. Taking only the operating cost and expenditure will not be enough to understand the volume of debt. 

Privatization of AI is the market need of other private airlines, rather than the government. As said before, the market and infrastructure of AI cannot be beaten, so private airlines want it to be privatised so they can take ownership of the infrastructure.

This is applicable to the telecom and mining sector as well. It is important to see that not all public sector companies are loss-making. The performance assessment of public sector companies conducted by Ajay Chhibber and Swati Gupta in 2017 shows that many such companies’ performance has improved over time.

The government’s argument of “loss-making” is no justification for privatisation of public sector units in the country. It is private sector expansion that is determining the privatisation or disinvestment of public sector companies.

Last updated: July 03, 2017 | 17:51
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