Air India: Will it Finally Find its Wings?

THE AIR INDIA PRIVATISATION was one of the most keenly awaited events on India’s economic calendar, as will be BPCL for a host of reasons which are fundamental to the India story.

- Prabal Basu Roy

To understand the full import of the Air India divestment it is necessary to open the annals of the history of a similar highly contentious divestment of Lufthansa in the mid-1990s. This was achieved in a difficult political environment which tested the determination of Helmut Kohl when Germany was faced with the costs of reunification and their traditionally fierce sense of nationalism for public sector assets which had prevented Lufthansa’s privatization in 1985. Prime Minister Modi faced similar challenges and the Air India divestment now provides a definitive view on the government’s will to make it a success.

The ultimate success of any major policy rests primarily on gauging its policy intent, its execution, and overall implications across a broad set of parameters. Privatisation has been accepted by governments in both advanced and developing nations for a wide range of reasons. Classical privatization theories focus on the role of ideological viewpoints, economic theory, fiscal compulsions, and forces of globalisation. A deep study of Lufthansa indicates that it was neither ideological preferences (unlike in the UK led by Thatcher’s conservatism) nor classical economic theory of principal-agency costs that led to its privatization. It was instead a combination of a budgetary crisis – precipitated by massive costs of unification with East Germany post the fall of the Berlin wall – and severe competition in the global airline industry which prompted the political establishment to consider privatisation of Lufthansa as the last desperate policy option.