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Privatisation, yes; globalisation, no

There is a story I heard in Singapore about the foundation of the national airline. In the week that Singapore Airlines went operational, the finance minister called in the chief executive. "I can provide financial support for this undertaking for one year," the minister said, "after that you are on your own!"

I have no idea if this story is correct. (Isn't 12 months a little too short a period?) The spirit of the tale is, however, essentially correct. Singapore Airlines is, and always has been, run as a straightforward business operation. There was no nonsense about keeping it afloat as a matter of national pride or any other such emotion. At the same time, the managers of the airline also knew that politicians wouldn't interfere in their operations. That carrot and stick policy has resulted in an airline that is regularly voted as one of the best in the world.

Once upon a time, you could have said much the same of Air-India. The sad part is that Air-India could have been -- should have been -- where Singapore Airlines is today. It began as the brainchild of the legendary J R D Tata back when Singapore itself was still nothing more than the administrative capital of a British colony. It had a well-earned reputation for efficiency, punctuality, and hospitality as long as it was under his stewardship, but the airline's long spiral downward began when the Government of India nationalised it.

Nobody, then or now, has explained why this was necessary.

Today, finally, sense has prevailed and the Government of India is seriously considering leaving Air-India to its fate. Given what I have written above, you may think it odd that I have mixed feelings when I hear this. My point, however, is quite simple: I am entirely for privatisation, but I am not so sure about globalisation.

I sincerely believe that Air-India requires professional management, something that is just not possible as long as the iron hand of the bureaucracy rests over it. Enough experiments have been tried over the years, but nothing has worked, not even bringing industrialists from outside. Russi Modi, Rahul Bajaj, Ratan Tata -- each of them has struggled with Air-India or Indian Airlines and with distinctly mixed results. But privatising Air-India does not mean that foreigners should be allowed to take control of the airline.

The Government of India has 100 per cent of Air-India today. As I understand, the proposals before the Vajpayee ministry call for this to be reduced to 40 per cent. Of the remaining 60 per cent, 40 per cent will go to a strategic partner, 10 per cent to employees and 10 per cent to domestic financial institutions and investors in the Indian share market. There is a further provision: If the proposed strategic partner includes a foreign partner, the foreign shareholding must not exceed 26 per cent of the total equity.

So far, so good. Please note that the policy does not say that the management of Air-India shall pass into non-Indian hands. In fact, the last clause suggests quite the contrary. Nevertheless, the impression has been allowed to prevail that the management is almost fated to be foreign. How did this happen?

First of all, that figure of 26 per cent is a little misleading. Under the current provisions of the Indian Companies Act, a person or an institution holding shares has the power to veto any proposal. That power of veto holds true even if the majority of the shareholders are in agreement on a proposal. In other words, it is possible for 26 per cent to make the other 74 per cent completely helpless.

Second, what will be the role of the Indian component in the strategic partnership (which will run the airline)? Remember that the Government of India proposes to give the strategic partner 40 per cent of the equity. If the foreign partner insists on taking the full 26 per cent to which it is entitled, the Indian component can't be more than 14 per cent. The Indian partner will then be nothing more than a purely ornamental presence.

Third, let us assume that the Government of India is serious about stepping back and permitting a private firm (or consortium) to handle day-to-day operations. What happens if the Indian partner is reduced to a minority? The Government of India has adopted a hands-off policy. The 10 per cent given to the stock market will be spread so diffusely that it won't be a factor at all. Employees may protest, but who will sympathise with the workers in a public sector undertaking in this day and age?

Where does this leave Air-India? I am afraid that the public impression then becomes quite true -- the airline is, for all practical purposes, in the hands of foreigners. They may have as little as 26 per cent of the equity, but they will control Air-India. This will be a very shameful state of affairs.

I would like to point out that several other countries, irrespective of how much they like the principle of economic reform, are chary about letting their airlines pass into the hands of other nations. In China, Mexico, and Australia, to name but three, foreigners are not permitted to hold more than 25 per cent of the equity. Thailand, which is also considering privatising its national carrier, is not considering crossing this 25 per cent figure and the actual number is more likely to be 15 per cent.

The Australian case is particularly instructive. The strategic partner in this case was British Airways when the Australian government decided to privatise, but it was allowed only 25 per cent. The actual management remains with Australians and British Airways has only been a nominal participant on the board of directors.

I began with Singapore Airlines, so it seems fitting to end with it. While Singapore is often considered a paragon of free enterprise, its government did not offer foreigners more than 25 per cent when it came to privatising Singapore Airlines. What is more, the Government of Singapore had two different kinds of shares; the ones meant for Singaporeans were made available exclusively for citizens of Singapore. Is there any reason to believe that we in India can somehow do better than Singapore by entrusting J R D Tata's creation to foreigners?

T V R Shenoy