Unattractive Offers
Unattractive Offers

‘Government of India’ has abandoned its disinvestment plans of Air India as no bids were received. This is not the First failure of Disinvestment attempts of GOI. Earlier, ‘The Airports Authority of India’ (AAI) had to defer the plans to privatize the Jaipur and Ahmedabad airports due to the apathy of private players. Privatization bid for Government-owned ‘Pawan Hans’ also met the same fate.

The government has reacted to these failures by scraping the plans of privatization altogether. Although dismissing an idea of disinvestment, when met with the failure is hardly in the national interest. Rather, there is a pressing need for a root cause analysis to find out what went wrong.

In the case of Air India, the conditions of the offer made by the government were in itself a reason for the failure of this disinvestment attempt. The terms of this offer were as below:

  1. Government would sell only 76% of Air India retaining the remaining 24% stake with itself.
  2. A buyer would need to absorb two-thirds of the airline’s debt which is approximately $7.8 billion.
  3. Government has asked buyers to keep the airline’s employees on the payroll who are around 27,000 in number. There would be a lock-in period of one year, during this period the new owners cannot fire the existing employees.

From a buyer’s perspective, this offer significantly lacks in an appeal.

As there is a notable amount of debt that the new owner would take over. Making the airline profitable again would need turning around the operations of the airlines and colossal restructuring of processes. With Government staying in the picture, these structural reforms would not be easy or even possible. Terms on retention of employees didn’t make the offer any better either. In the presence of the above reasons, it is not surprising that the Government’s ‘Expression of Interest (EOI)’ did not receive any response from private entities.

The disinvestment offer for Pawan Hans was somewhat similar. The government was to sell only 51% of its stake and remaining 49 percent stake was to be held by oil Giant ‘ONGC’. Decision making prowess of the new private owners surely gets restricted with the government’s presence in such kinds of co-owned businesses.

Citing an example, ‘The Airports Authority of India (AAI)’ had to defer the plans to privatize the Jaipur and Ahmedabad airports due to lack of bids. The offer allowed buyers to operate only the terminal of airports. Merely terminal operations did not have any promise of significant profits and hence failed to attract the investors.

There is a recurring phenomenon in all these failed privatization offers which were unattractive to buyers. And this phenomenon is ‘government’s unwillingness to step out’. When private players make huge investments in these state-owned companies, they certainly look for an unmitigated autonomy in running these businesses. Government’s presence many a time hinders the restructuring of a business that is needed to make it profitable.

Government’s inability to attract bidders for ‘Air India’, ‘Pawan Hans’ and ‘Jaipur and Ahmedabad airports’ is a setback to the privatization process as a whole. Lessons must be learned from these failures so that future disinvestment plans do not suffer. Privatization is not just an admirable but an essential step for a country to recover from a socialist hangover. Hence, governments should surely learn to make attractive disinvestment offers which could not be refused. As coming up with a disinvestment policy that works is a need of time for India.

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