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why in news:

  • The government’s effort to privatise Air India Air Transport Services Ltd., Air India’s ground handling arm, has run into a stone wall, with potential bidders raising concerns over the Airport Authority of India’s plan to award ground-handling work at 76 of its airports to vendors.

Background: / What is the present condition of Air India?

  • Air India had accumulated debt of more than Rs.50,000 crore as of the end of the 2015-16 fiscal year.
  • Flights are routinely delayed, the equipment is old and mouldering, and the service is poor. The airline has become a platform through which politicians and officials enjoy the perks of office.

What are the advantages of privatization?

  • A privatized Air India will cease to be a drain on the exchequer.
  • The theory of economic policy establishes that government intervention in the economy is warranted only in the event of market failure or of an overarching non-economic objective. Going beyond conventional tools of intervention, such as regulation, taxes and subsidies, nationalization and monopolization of an industry only makes sense in the rarest of cases.
  • e.g Situations in which the private market cannot deliver, such as a case of catastrophic market failure. So logically the government should not be in the commercial airline business. It might support flights to commercially unviable areas, subsidies, etc, not nationalization. Competing with private airlines, Air India is not doing a good job of it.
  • Its domestic market share dropped to about 13% as of March 2017.

What should be done?

  • The best way to turn Air India into a great global airline would be to cut it loose from the clutches of the government. It can be done either by fully privatizing the airline or reducing the government’s stake to a minority interest. e.g Following the privatization, British Airways rose to become the world’s “favourite airline”. The experience of other countries, from Kenya to Canada to Singapore shows how successful is privatization.
  • Disinvestment of Air India would send absolutely the right message, that India is now a market economy.
  • If that happens, we will know that the old era of central planning is, just maybe, genuinely behind us after all.
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