India’s first Prime Minister Pandit Jawaharlal Nehru was a strong votary of the public sector as well as the Soviet model of socialism. Hence, he set store by public sector undertakings (PSUs) where private capital was shy.
Nobody could fault him for this. A clutch of SAIL steel plants sprang up resultantly, and gave tremendous push to India’s infrastructure, and industrial growth.
Where he went wrong was in reposing touching faith in the public sector almost as a gospel truth. That is why he went overboard and rationalised Tata Airlines’ nationalisation in 1953 (that meant wrenching it away from Tatas) on the ground that transport being a crucial sector it should be in the public sector. Today, almost 70 years later, the wheel has come full circle, and the Narendra Modi government has corrected the historical wrong when it invited the private sector to bid for Air India, and the Tatas won it back. In a manner it is poetic justice.
Nehru’s great-granddaughter Priyanka Gandhi Vadra too has been a strong public sector votary. In November 2019, she gushingly described them as golden birds. Now she has followed it up by launching an attack on the sale of Air India to Tatas for Rs 18,000 crore.
Air India has been bleeding the taxpayers, who have been stoically grinning and bearing the daily operational loss of Rs 20 crore piled up relentlessly on its accumulated losses that had long ago turned its net worth into negative. Its debt of Rs ~62,000 crore was a put off for its suitors so much so that three years after it drew a blank, the government was lucky to find two suitors competing for it. Hardeep Puri, the then Civil Aviation Minister, aptly remarked that the choice was between closing down and selling. He thus implicitly ruled out business as usual.
The government could have closed it down, but it would have meant a loss of various domestic and international airport landing and parking rights — 4,400 domestic and 1,800 international. It would have also meant loss of employment to ~13,000 employees. It did own 87 of the 172 aircraft in its fleet, but it is anybody’s guess what would have happened had they been put on the chopping block. It is buyers’ market out there for all ‘used’ properties. Nobody risks buying old fleet especially when Boeing and Airbus are on their limbs offering phased deliveries at predetermined prices.
So the government did well to look for a strategic buyer, and not a scrap dealer. The charge of crony capitalism and sell out, therefore, sounds hollow. Similar charges were made when the Atal Bihari Vajpayee government sold 51 percent stake in BALCO to Sterilite Industries for Rs 550 crore little realising that it was the sole bidder. The specious argument advanced by the communists was that the conservative liquidation value of BALCO was Rs 2,000 crore. One should remember the difference between selling as going concern, and selling piecemeal as a receiver does.
When you are looking to keep Air India or any other enterprise a going concern, its liquidation value must be thrown out of the nearest window. In TV panel discussions, liquidation value ranging wildly and egregiously between Rs 50,000 crore and Rs 3, 00,000 crore is being bandied about. Touché!
Having said that, one hopes the final agreement is more airtight. News reports suggest that Air India's existing employees have to be retained during the first year of operations, and the Tatas will have to ensure business continuity. The new owner can’t transfer Air India’s logos — there are eight — for at least five years. After that, these can be transferred only to an Indian entity.
The government has cleverly passed on the unpleasant job of wielding the hatchet to the Tatas who most certainly would bide their time, and downsize by various means, including by offering jobs in its vast conglomerate that boasts operations from salt to software. Curiously, even while harping on brand retention, the government seems to have been a little lax on retaining the business itself.
Section 72A of the Income Tax Act seeks to prevent asset-stripping by imposing two conditions on the amalgamated company for setting off the losses of the amalgamating company — continuity of operations for five years, and retention of at least 75 percent of the assets of the amalgamating company for five years. While there is nothing in the Tatas’ history to suspect possible asset-stripping, one hopes, as a measure of abundant caution in an industry marked by vicissitudes, the Tatas are stopped from selling at the pain of having to pay liquidated damages or a hefty sliver of profits (claw-back).
S Murlidharan is a chartered accountant and columnist.
Views are personal and do not represent the stand of this publication.
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