Recent reports reveal that the government has approved a high-value bid by Talace Pvt Ltd, a wholly owned subsidiary of Tata Sons Pvt. Ltd, for the disinvestment of Air India (AI). The disinvestment entails a 100% sale of the government’s equity shareholding in AI. In addition, Tata will secure 100% ownership of Air India Express, AI’s international low-cost arm, as well as 50% stake in the ground handling joint venture, AI SATS.
Reasons for Air India’s Disinvestment
By transitioning AI into the private sector, it is anticipated that operations and costs will become more streamlined and services on board will improve. Further provisions, such as the availability of wi-fi, are also expected to be introduced. This move is postulated to stimulate major Indian airports in Delhi, Hyderabad, Mumbai, and Bengaluru. It should also motivate an influx of tourism spending from Indians currently opting for foreign carriers. The successful reformation of AI could provide significant benefits to the Indian economy, given the well-documented multiplier effect of aviation. Governmental pressure to support the economic recovery and to meet outlay expectations for healthcare has brought this need for resource generation to the fore.
The Impact and Significance of the Disinvestment
The effects of AI’s disinvestment are multifaceted. Aside from relieving taxpayers of the daily losses incurred by AI, it will facilitate other challenging decisions that the government is eager to address. The likelihood of introducing an additional low-cost domestic carrier is another exciting prospect borne out of this disinvestment.
Understanding the Disinvestment Process
Disinvestment describes the sale or liquidation of government assets. These assets commonly encompass central and state public sector enterprises, projects, or other fixed assets. The overarching aim of disinvestment is to reduce the fiscal burden on the state, or to raise funds to meet specific requirements such as bridging a shortfall in revenue from other sources. When ownership and control of a public sector entity are transferred to another entity (usually in the private sector), this constitutes strategic disinvestment, which implies privatization.
The Role and Guiding Principles of Strategic Disinvestment
According to the disinvestment commission, strategic sale involves selling a sizeable portion of the government’s shareholding in a central public sector enterprise (CPSE)—up to 50% or more—as determined by the competent authority, along with management control. The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance serves as the nodal department for these strategic stake sales in Public Sector Undertakings (PSUs).
India’s strategic disinvestment follows the basic economic principle that the government should refrain from producing goods and services in sectors where competitive markets have matured. Entities undergoing strategic disinvestment may realize their economic potential better under strategic investors. This can be attributed to various factors such as capital infusion, technology upgrade, and efficient management practices.