Edit & Opinion

Govt offloads Air India: Power Crisis New Jolt

 The sale of national carrier Air India, eight-year tax reprieve to Tatas, a severe power crisis that may give a jolt to industry and agriculture and the stepping down of Chief Economic Advisor K Subramanian gives a new twist to the economy. It’s not an easy situation to steer through.

The country may finally heave a sigh of relief as it hives off an airline with over Rs 70820 crore losses as on March 31, 2020, combined debt of Rs 61,562 crore. The Tatas virtually take the assets over for a cash of Rs 2700 crore. It does not get the Air India tower at Nariman Point in Mumbai. Its Air India businesses would be funded from its future tax savings.

Of the total debt, the Tatas take over Rs 15300 crore and the remaining Rs 46262 crore will be repaid by the AI Assets Holding through monetising of Rs 14,000 crore assets that are not given to Tatas, including Air India tower, and the rest will be paid through government revenues. Since 2009-10, the government has pumped in Rs 1.10 lakh crore to support the airline.

Tatas effectively takes over AI, AI Express and 50 per cent of cargo handler AI SATS Airport Services for Rs 2700 crore in cash and the rest is adjusted against its debt takeover of Rs 15300 crore. No wonder CEA in his exit statement avers that he served “a period of tremendous uncertainty and epochal change”.

The addition to AI to its portfolio gives Tata a significant leg-up in its international operations as it gets access of 1800 international landing and parking slots in India and 900 slots at airports overseas. It also gets 4400 domestic slots.

The country effectively reduces the recurring losses. For eight years, Central Board of Direct Taxes allows Tatas not to bother about the taxes as these would be adjusted against losses Tatas are sharing. Still nobody knows why AI and Indian Airlines merger in 2007-08 by the UPA government led to continuous losses to a moderately profit maker. This was marked by a process of allowing many profitable routes to its competitors.

The power crisis is also unique. Almost entire generation is in the public sector while distribution and revenue earning has been virtually hived off to the private sector. With coal shortage, despite high reserves, it is to hive off profits, increase costs as coal prices rise internationally. It would heap a heavy cost on all activities as the tariff has to increase, add to severe inflation and cause production losses at a time when the country post-pandemic needs to move faster. The problem accentuates as petroleum crude prices also going beyond $ 77 a barrel. There could be more job losses against recent hopes of adding to employment.

Even Air India sale would have repercussions on the 12,085 AI plus 1,433 employees of AI Express jobs for a year. After that Tatas can decide on the terms and effectively that means large number of people would exit and new fewer new jobs would be created. The private sector has virtually tailored its operational strategy on fewer staff, long working hours and less concomitant benefits and  It has not emerged as model employer with hire and fire being the rule causing extreme uncertainties in the society.

That does not mean that the decision to hive off is not proper. It raises questions on why the 2007-08 merger happened and who was responsible for it. The country may have to decide on the process of decision-making, without a public discussion.

The power sector is going through such a crisis. Since Independence, despite the Pandit Jawaharlal Nehru government offering to the private giants, no private sector has tried to get into the critical power generation. India is the world’s third largest producer and third largest consumer of electricity. The national electric grid in India has an installed capacity of 388.134 GW as of 31 August 2021. Private sector is marginally there.

India being the highest consumer of coal, as it reaches the international market, coal prices shoot up. Recently it has increased by 40 per cent. During the pandemic, when crude prices fell to its lowest, it is shooting up now and this is turning into a global crisis. The international agencies are concerned and it may lead to another shock post-2007-08 Lehman meltdown. It means for 12 years the globalised economy could not come out of a crisis.

Another shock is the more the globe gets ‘smaller’ and supposedly integrated more it is getting into different kinds of economic shocks. More it is digitised, more is the crisis. The model of activity in the digitalised world has changed. It has moved out of production-linked market to service and finance-oriented secondary operations. World over there are efforts to reduce on manpower but aim at high growth. The impractical is happening and causing social instability.

This is in contrary to the model of employing larger number of people and empowering them for social good even at financial losses. It has changed to the opposite – minimum jobs and not bother much about the social distress, working conditions. The Air India interestingly enough fits into this bill.

The troubled national carrier has earned the dubious distinction of being an airline with the highest number of employees on its rolls per aircraft as it has been hiring staff to oblige political bosses. The AI has the highest 221 worker per aircraft. British Airways has 178 employees per aircraft, 140 by Singapore Airlines and Lufthansa has 127. So a cut in jobs is natural. While such high employment ratio looks impractical, the lows that many are adopting also are problematic and that to at low wages. These include some of the highest degree holders in various private sector jobs or contractual jobs in public sector.

The Tata takeover may have many emotional moments such as its creation by Jamshedji Tata in 1932, in 1953 and the government takes it over and after a long roller-coaster journey once again it goes back to Tatas. This is a lesson for countries to learn that the system has to be mixed. Public sector is needed and cannot be wished away as the present power crisis demonstrates. Similarly, private also has to exist for overall development. None should be given the extra weightage.

 

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Shivaji Sarkar

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