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This article was first published 4 years ago  » Business » Modi may shut Air India by June

Modi may shut Air India by June

By A K Bhattacharya
January 09, 2020 08:57 IST
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'The Modi government is trying hard to see if it could be sold to a private airline.'
'But it appears there are no takers.'
'If no buyer comes forward by June, the government will close down Air India,' predicts A K Bhattacharya.


With 2019 having ended on a depressing note, a lot of hope rests on 2020.

Will the New Year usher in a revival in the Indian economy?

And will the Narendra Damodardas Modi government, which in 2019 was mostly focused on achieving its political agenda, pay more attention to the economy in 2020?

Nobody can anticipate, let alone predict, what Mr Modi will do in 2020.

But what one can safely do is to list out the possible key economic issues that might figure in the New Year.

Here are three such issues or developments that you need to be prepared for in the next 12 months.

Air India may be history

Air India, the State-owned airline, may not exist after June 2020, if government officials are to be believed.

The Modi government is trying hard to see if it could be sold to a private airline.

But it appears there are no takers.

If no buyer comes forward by June, the government will close down Air India.

Its pilots have already sent a letter to the civil aviation ministry urging it to clear their wage arrears and other dues before Air India is shut down.

The closure of Air India will mark the end of a saga in India's civil aviation industry.

It was an airline that was floated by the Tatas and run efficiently as a private airline for quite some time before India's first prime minister decided to nationalise it.

Since then, successive prime ministers have allowed Air India to operate as a public sector enterprise, lose market share, become more inefficient and incur losses.

Air India's financial dependence on the central exchequer has kept rising over the years.

It was only sometime in the middle of 2017 that the Modi government decided to privatise Air India.

However, the procedures adopted for its sale were such that the privatisation exercise was doomed to failure right from day one.

In its second term, the Modi government has once again tried to privatise Air India, but so far with little success.

Hence, there is now talk of its closure in June, if no buyer is found for the airline.

If that indeed happens, it would reflect how governments over the years have neglected Air India and allowed a slow destruction of an asset.

If the privatisation move had been initiated earlier and with a greater sense of realism by making the norms more attractive, Air India could have escaped the ignominious fate that it would face after June 2020.

There is a lesson in this for many other such assets that the Union government still owns.

Budget 2020 may reveal the true state of government finances

Just about a month later, Finance Minister Nirmala Sitharaman will unveil the Union Budget for 2020-2021.

Understandably, the Budget will give a clear indication of the government's approach to how it wishes to tackle slowing economic growth.

Whether it would do so by increasing expenditure on infrastructure projects or by cutting taxes or by a mix of both types of measures keeping in mind the need for fiscal consolidation, the Budget will reveal it all.

However, the more important revelation of Budget 2020 will pertain to the true state of government finances.

It has to acknowledge, for the first time, that the actual gross tax revenue collections in 2018-2019 were substantially lower than what the revised numbers indicated when the last Budget was presented in July 2019.

It may also have to indicate the true extent of the government's off-Budget borrowings which it has resorted to in the past to help meet its expenditure, without adversely affecting its headline fiscal deficit number.

It will be interesting to see if Budget 2020 presents a more realistic fiscal deficit number that is arrived at without seeking recourse to off-Budget borrowings or imaginative accounting.

GST Council meetings will become contentious

The last meeting of the Goods and Services Tax Council held in New Delhi last month provided an early indication of how contentious its deliberations in the coming months will become.

The 38th meeting of the Council had to decide on the fixation of rates for lotteries through a voting, the first time a decision was taken on the basis of voting since the Council was set up more than three years ago.

All decisions in the past were taken on the basis of consensus.

Now, the politics of the country has undergone a significant change.

The Bharatiya Janata Party at present rules only 17 states.

In the GST Council, 29 states and the two Union Territories of Delhi and Puducherry have a vote each that can be exercised when consensus becomes elusive.

But each vote of the states and the Union Territories has a weight of 2.1.

A decision can be taken only when it receives approval from three-fourths of those present and voting.

The Centre has a weight of 33 or one-third of the total.

Of course, the Centre can count on the 17 BJP-ruled states for their support at the GST Council meetings.

But that would give them a total weight of 69, including 33 of the Centre and 36 of the 17 states.

This, however, will be six votes fewer than what will be required to get a decision approved at the GST Council.

In other words, the Centre will not only have to count on all the 17 BJP-ruled states, but also get at least three more states to support its proposals at any voting during the Council's deliberations.

In short, GST Council meetings in 2020 will become more contentious and the Centre will have to embrace the principles of co-operative federalism not just in letter but also in spirit.

The above three issues or developments in 2020 are only a few examples of how the New Year would pose new challenges for the Indian economy as also the polity.

If the right lessons from these developments are learnt early enough by the government, one can expect 2020 to end on a less depressing note than 2019 did.

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A K Bhattacharya
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