The

of

Crony Socialism

Narendra Modi

- by Vivek Kaul

The Crony Socialism of Narendra Modi

| 2

Preface
Recently, I wrote a column in which I said that the Mahangar Telecom
Nigam Ltd(MTNL), should be shut down. One gentleman responded to this
on Twitter. He had been a telecom analyst for 15 years and said that my
MTNL piece was shit. He further said MTNL numbers are good. Their debt is
only at Rs 2,000 crore. In comparison, the American telecom company AT&T
has a debt of $120 billion (I haven't verified these numbers). This when
MTNL losses in the last two years amount to around Rs 5,000 crore. (Actually
more if we were to ignore the huge jump in other income).
How are MTNL and AT&T connected, he didn't explain. The basic point is
that a private company can do, what it chooses to do. But a government
owned company needs to be a little more careful. It cant keep running losses
or running up a huge debt, for the simple reason that the government funds
these losses and there are other things that it can do with this money.
The telecom analyst further said that if MTNL/BSNL shutdown private
telecom companies will blackmail us. As far as MTNL is concerned, in the
mobile space, the company has more or less shutdown. So if there is a
question of blackmailing, we are already being blackmailed. I have been
without a phone connection for more than a week now, since my CDMA
connection shutdown. My number portability request has been pending for
close to ten days.
Further, it took me close to seventy-two hours to get another connection
going. So the blackmail is already on. If MTNL had been run properly this
wouldn't have happened. But government companies have never been able to
compete in areas where there is tough private competition. This has been
proven over and over again. (Airlines/Telephony/Banking/and even
condoms).
Selling/shutting down MTNL will not make an iota of difference when it
comes to private telecom companies blackmailing us.
This is true for BSNL as well, when it comes to mobile telephony, in most
states. Perhaps Kerala is an exception, where I am told the company actually
makes money. Surprise. Surprise.
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The Crony Socialism of Narendra Modi

A small portion of population benefits because of MTNL landline and a

decent broadband connection (I have never used it. But so people tell me).
Some people in Delhi and Mumbai, are also emotionally attached to their
MTNL landlines. Dont ask me why! They feel that this emotional attachment
should be kept in mind and the government should continue let MTNL piling
on losses.
So does that justify keeping the company going? Since whataboutery is an
accepted form of analysis these days, what about spending this money in a
better way on education and health? Or even on building roads in villages?
The list is a long one. The government isn't exactly flush with money and
given that it shouldn't be wasting it.
There is no reason that a company like MTNL has to survive. It needs to be
shutdown, lock, stock and barrel and its physical assets sold off, one by one.
Oh, and there are other such companies.
There is Air India
There is Hindustan Photofilms
There is Hindustan Fertilizers
The list is a long one.
But the Narendra Modi government wants to revive these companies. This is
one way of keeping his ministers relevant. What is a minister without the
CMDs of a few public sector enterprises reporting to him. Also, political
supporters without a job, can be appointed on the boards of such companies.
The Congress governments over the years encouraged both crony capitalism
of private sector companies and the crony socialism of public sector
companies, by continuing to bailing out their losses.
The public sector enterprises have lost a total of Rs 2,72,512 crore between
1995-1996 and 2014-2015. Of course, this calculation has got very little
meaning given that it does not take inflation into account. If inflation were to
be taken into account, we would be expressing the losses of 1995-1996, 19961997 and so on, by adjusting them for inflation. This would be a horribly big
The Crony Socialism of Narendra Modi

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number.
Narendra Modi does not seem to be in the mood to shutdown/sell-out these
companies. He wants to revive them. As he recently told The Wall Street
Journal in a recent interview:

"Actually, in any developing country in the world, both the public sector and
the private sector have a very important role to play. You can't suddenly get
rid of the public sector, nor should you."
So losses of two decades werent enough to take an informed decision.
Hence, while crony capitalism has taken a beating under Narendra Modi,
crony socialism is alive and kicking.
Happy Reading!
Vivek Kaul

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The Crony Socialism of Narendra Modi

The Crony Socialism of Narendra Modi

TABLE OF CONTENTS
Page

Why MTNL Cannot Be Turned Around

__________________________________________________________________

India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream
_______________________________________________________________________

10

Flipkart, Air India and the Crony Socialism of Narendra Modi

16

It's Time Govt Admits, It Does Not Know How to Run Air India

20

__________________________________________________________________
__________________________________________________________________

The Crony Socialism of Narendra Modi

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Why MTNL Cannot Be Turned

Around
- By Vivek Kaul

Normally I don't write on individual companies, so today's column is a bit of an

exception to that. Today I plan to discuss the annual results of the government
owned Mahanagar Telephone Nigam Ltd.(MTNL), and why it cannot be turned
around.
The cue for this column lies in the fact that for the period of January to March
2016, the company made a profit of Rs 174.58 crore. The results were declared
on May 30, 2016. On the same day, the telecom minister, Ravi Shankar Prasad,
told The Economic Times, that the telecom department is "also working on to
improve state-run Mahanagar Telephone Nigam Ltd. (MTNL)".
Does that mean MTNL can be turned around? The answer is no. There is a
fundamental problem with the way the company is run, and I have my doubts on
whether that can be corrected. But before we get into that, let me first try and
explain how did the company end up with a profit of Rs 174.58 crore during the
last three months of 2015-2016.
There were basically two entries that helped the company come up with a net
profit. The other income for the period stood at Rs 580.60 crore. Other income
essentially means the money that a company earns from activities other than the
normal business operations.
The company earned Rs 458.04 crore from surrendering the spectrum it used
for its CDMA operations, back to the government. The company discontinued
its CDMA operations from March 1, 2016, onwards. Further, taxes of Rs 492.96
crore for an earlier period have been written back. These two items essentially
helped the firm come up with a net profit of Rs 174.58 crore.

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The Crony Socialism of Narendra Modi

The annual loss of the firm for 2015-2016 stood at Rs 2,012.24 crore. This is
lower than the losses of Rs 2,901.16 crore in 2014-2015. This has been achieved
through the surrendering of the CDMA spectrum and a tax write back. If these
two things hadn't happened, the losses of the company in 2015-2016, would have
been similar to the losses in 2014-2015.
Now let's talk about the fundamental problem that the company faces and why
the telecom minister Ravi Shanker Prasad, cannot turnaround the company,
despite his best intentions. Allow me to explain.
For the year 2015-2016, the company's income from operations (which does
not include its other income) stood at Rs 3,197.40 crore. Of this, Rs 2,310.76
crore went towards employee benefits. A further, Rs 343.68 crore went towards
employee benefits for retirement. Hence, of the Rs 3,197.40 crore operational
income of the company, a total of Rs 2,654.44 crore went towards employee
benefits.
This basically means that 83% of the company's income from operations went
towards meeting employee cost. This is not an anomaly. In 2014-2015, employee
cost formed around 78% of the company's income from operations. Hence,
employee cost as a proportion of income from operations has gone up by a
whopping 500 basis points during the course of just one financial year. One basis
point is one hundredth of a percentage.
How does this compare with competition? Let's look at the numbers of Bharti
Airtel. In 2015-2016. The income from operations of the company stood at Rs
60,300.2 crore. This is close to 19 times the total income from operations of
MTNL.
And how much money did the company spend on employee benefits? Rs
1,869.3 crore. This is nearly 30% lower than the employee benefits expenses of
MTNL. So what does this mean? It means that Airtel earned 19 times MTNL's
income from operations by spending 30% lesser on its employees.

The Crony Socialism of Narendra Modi

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Further, Airtel's employee cost in 2015-2016 was 3.1% of its income from
operations. MTNL's was at 83%. And how did things look for Bharati Airtel in
2014-2015? The employee benefit expenses of Airtel were at 3.05% of its
income from operations. For MTNL, the figure was 78%. Hence, the employee
benefit costs of Airtel went up by 5 basis points, during the course of one
financial year, whereas that of MTNL went up by 500 basis points.
This is what MTNL is competing against. For it to be viable, the employee cost
as a proportion of income from operations, will have to come down dramatically.
That can only happen in two ways-salaries being slashed or employees being
fired. The first option can be ruled out. The second option will have its own
share of costs.
Actually, there is a third way as well i.e. if the company manages to increase its
income from operations. But given the brand image that the company has among
consumers that seems to be difficult. As they used to say in the good old days
when MTNL was a monopoly, MTNL equals Mera Telephone Nahi Lagta. The
company had a branding problem back then as well, but the consumer did not
have choice. Now he does and he has executed it.
Also, MTNL operates in Delhi and Mumbai, the two biggest and the two
toughest telephone markets in the country. While it goes about restructuring
(assuming that it does), the other companies won't be sitting idle doing nothing.
While excuses can still be made for keeping Bharat Sanchar Nigam Ltd(BSNL)
going, there is none to keep MTNL running.
It's time the government shuts down the company and starts monetising its
assets. MTNL has offices in premier areas of Mumbai and Delhi. In Mumbai,
two offices in Prabhadevi (Central Mumbai) and Cumbala Hill (South Mumbai)
can be sold at a very good price. The money thus earned could be spent towards
improving the physical infrastructure of the country.
It's time the country stopped subsidising the lives of a few thousand individuals
that MTNL employees.

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The Crony Socialism of Narendra Modi

India's Crony Socialism and Why Congress

Mukt Bharat Will Remain a Dream
- By Vivek Kaul

The prime minister Narendra Modi in a recent interview to the Wall Street
Journal said: "Actually, in any developing country in the world, both the public

sector and the private sector have a very important role to play. You can't
suddenly get rid of the public sector, nor should you."

In this column we will concentrate on the second sentence i.e. you can't
suddenly get rid of the public sector.
Let's look at the losses of the loss making public sector units over the last
twenty years. As can be seen, the losses have gone up from Rs 5,188 crore per
year to Rs 27,360 crore per year. While the number of loss-making public sector
enterprises came down over the years, it has started to go up again. Also, it needs
to be stated here that I stopped in 1995-1996 because I couldn't find data before
that.

The Crony Socialism of Narendra Modi

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Year

Total losses of loss making PSEs

Number of loss making

(in Rs crore)

PSEs

1995-1996

5,188

102

1996-1997

5,939

104

1997-1998

6,697

100

1998-1999

9,305

107

1999-2000

10,302

105

2000-2001

12,841

110

2001-2002

10,454

109

2002-2003

10,972

105

2003-2t004

8,522

89

2004-2005

9,003

79

2005-2006

6,845

63

2006-2007

8,526

61

2007-2008

10,303

54

2008-2009

14,621

55

2009-2010

16,231

60

2010-2011

21,817

62

2011-2012

27,683

64

2012-2013

28,562

79

2013-2014

21,341

70

2014-2015

27,360

77

Source: Public Sector Enterprises Surveys

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The Crony Socialism of Narendra Modi

The public sector enterprises have lost a total of Rs 2,72,512 crore over the last
twenty years. Of course, this calculation has got very little meaning given that it
does not take inflation into account. If inflation were to be taken into account,
we would be expressing the losses of 1995-1996, 1996-1997 and so on, by
adjusting them for inflation. This would be a horribly big number.
The broader point here is that public sector enterprises have been losing
money for many years now. This is a problem that has been left unaddressed by a
series of governments. So, when Modi says that you cannot suddenly get rid of
the public sector, what he is not taking into account is the fact that these
companies have been bleeding for many many years.
In many cases, the government makes up for these losses, once the networth
(i.e. assets minus liabilities) of the company has been eroded. And this money
can easily be used somewhere else.
Up until, May 2014, India had an era of coalition governments. And this
limited the ability of the government to do anything about these loss making
companies. Each loss-making public sector enterprise comes under a ministry
and what is a ministry without a few public sector enterprises under it. The
current Modi government has no pressures of a coalition government.
Further, most political parties have trade unions affiliated to them and no
government likes to take them on. Hence, shutting down a public sector
enterprise remains difficult.
As of 2013-2014, a total of 2.5 lakh people worked for sick public sector
enterprises. A public sector enterprise is considered sick if its accumulated losses
at the end of a given financial year are equal to more than 50% of its average
networth in the four preceding years. Of course, the number of people working
for loss making public sector enterprises would be more than 2.5 lakh. But it still
forms an insignificant portion of the population.
The question is why is the whole county subsidising these 2.5 lakh people? Or
is this another version of sabka saath sabka vikas? The general impression is that
such a waste of money, hurts only the income tax payers, who form an
insignificant portion of the population and hence, the government does not
bother about them.

The Crony Socialism of Narendra Modi

| 12

This is incorrect. While everyone doesn't pay income tax, people do pay
indirect taxes. And by subsidizing these sick and loss making public sector
enterprises, the government is essentially wasting this money. In fact, the
government seems to have the same view as well.
As the Economic Survey of 2015-2016 points out: "Those paying the costs
could well be the poor. They pay taxes, even if only indirect ones. And they may
also have to bear the burden of paying higher prices while getting substandard
goods and services from inefficient firms which should have exited, but haven't."
Other than this, subsidizing these losses means that the government has lesser
money to spend on other things, given that it has only so much money to spend.
Let's take the case of money that the government spends on elementary
education (classes I to VIII). The following table shows the money spent on
elementary education between 1997-1998 and 2014-2015.

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The Crony Socialism of Narendra Modi

Year

Money spent on elementary

Total losses of loss making

education (in Rs crore)

PSEs (in Rs crore)

1997-1998

2,267

6,697

1998-1999

2,743

9,305

1999-2000

2,854

10,302

2000-2001

3,152

12,841

2001-2002

3,577

10,454

2002-2003

4,305

10,972

2003-2004

5,219

8,522

2004-2005

7,228

9,003

2005-2006

11,220

6,845

2006-2007

15,371

8,526

2007-2008

18,440

10,303

2008-2009

19,489

14,621

2009-2010

18,448

16,231

2010-2011

29,310

21,817

2011-2012

31,673

27,683

2012-2013

35,929

28,562

2013-2014

36,507

21,341

2014-2015

27,360

27,360

Note: The numbers from 2008-2009 onwards are actual numbers. The numbers before that are
revised estimates
Source: Indiabudget.nic.in

If one looks at the numbers between 1997-1998 and 2004-2005, the losses of
public sector enterprises were much more than India's elementary education
budget. After that, the allocation to elementary education has gone up.
The Crony Socialism of Narendra Modi

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Nevertheless, the losses of public sector enterprises continue to remain huge.

And this isn't good.
What is more necessary, subsidizing people who work for loss making public
sector enterprises or educating India's children? Of course, educating India's
children. So, why is so much money being wasted then on loss-making public
sector enterprises?
Also, it needs to be stated here that simply spending more money is not a
solution to the problem. The money needs to be well spent as well. In fact, since
the Right to Education became a reality in April 2010, the learning levels of
India's school children have actually gone down. (This remains another topic to
be discussed on another day).
The crony socialism of continuing to run loss making public sector enterprises
which was initiated by the Congress party, continues to survive. Prime minister
Modi told that Wall Street Journal that public sector enterprises couldn't be done
away with suddenly.
Actually, there is nothing sudden about the entire problem. These companies
have been losing money for many years. And some of them should have been
shut down a long-time back. But they haven't been. And from what he said, it is
unlikely that Modi will shut them down as well.
This means that the crony socialism of the Congress will continue to thrive.
Politically, Congress mukt Bharat, might become a reality, but when it comes to
economics, the more things change, the more they remain the same.
At least, in India.

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The Crony Socialism of Narendra Modi

Flipkart, Air India and the

Crony Socialism of Narendra Modi
- By Vivek Kaul

News-reports published in several newspapers last week revealed that the

ecommerce company, Flipkart, had postponed the joining date of fresh MBAs it
had recruited from the various IIMs, to December, later this year. The MBAs
were supposed to join the company in June 2016. In order, to compensate them
for the late joining Flipkart will pay the MBAs an extra joining bonus of Rs 1.5
lakh each.
These are clear signs of trouble at the company. In fact, one of the first things
the information technology companies had done after the dotocom and telecom
crash of 2000-2001, was to postpone the joining date of the fresh engineers it
had recruited. The joining dates kept getting postponed and in several cases
went beyond one year.
A friend of mine got so fed up waiting to join that he ended up joining the
Indian Navy.
The news-reports on Flipkart further suggested that the company is facing
funding issues and has had to cut costs to keep itself going. The question is why
are Flipkart and many other Indian ecommerce companies, having funding
issues?
In late January, earlier this year, I had written a column (not on Equitymaster),
in which I had called Indian ecommerce a Ponzi scheme. After the post was
published, I got solidly trolled on the social media. People said, I did not
understand technology. Honestly, I don't understand technology, even though I
am a BSc in Maths and Computer Science, and have an MBA in Information
Systems. But that part of my education I have more or less forgotten.
I don't understand technology, but I do understand a very basic point-in order
to survive, businesses need to make money. And almost all of the Indian
ecommerce companies don't make any money. If you look at their financial
results (currently available only as on March 31, 2015), their losses have grown
at a faster rate than their revenue. What sort of a business model is that?
The Crony Socialism of Narendra Modi

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Take the case of Zomato, a company which basically delivers food at your
doorstep. The latest numbers of this company are available because 47% of it is
owned by Info Edge, a stock market listed firm.
For the financial year ending March 31, 2016, the losses of Zomato shot up by
262% to Rs 492.3 crore. It had reported a loss of Rs 136 crore for the year ending
March 31, 2015. The revenue of the company went by around 91.3% to Rs
184.97 crore. The revenue for the year ending March 31, 2015, was at Rs 96.7
crore.
So, the losses of Zomato went up by 262%, when its revenue went up 91.3%.
What sort of business model is this, where the losses of the company go up at a
much faster rate than its revenue? Of course, I don't understand information
technology.
The Indian ecommerce companies have adopted a discount model in order to
lure customers. This means selling products at a loss in order to build a customer
base. And this has made their operating structure very similar to that of a Ponzi
scheme.
A Ponzi scheme is essentially a financial fraud in which investment is solicited
by offering very high returns. The investment of the first lot of investors is
redeemed by using the money brought in by the second lot. The investment of
the second lot of investors is redeemed by using the money brought in by the
third lot and so on.
The scheme continues up until the money being brought in by the new
investors is greater than the money being redeemed to the old investors. The
moment the money that needs to be redeemed becomes greater than the fresh
money coming in, the scheme collapses.
How does this apply in case of Indian ecommerce companies? Up until now the
ecommerce companies have managed to survive because of private equity,
venture capitalists and hedge fund investors, bringing in fresh money into the
company at regular intervals. This fresh money being brought in essentially
funds the huge losses that these companies make, in order to drive up their
revenues.

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The Crony Socialism of Narendra Modi

This money seems to have dried up or is coming in more slowly than it was in
the past. And this has put many Indian ecommerce companies in trouble. Some
of them have had to cut down their operations. And some others like Flipkart
have had to postpone joining dates of MBAs they have recruited, in order to
control costs.
And this brings us back to the oldest business lesson-businesses need to make
money, in order to survive. Businesses which don't make money for an extended
period of time, don't survive. They shutdown. That is how it is.
Of course, there is a corollary to this rule. There are businesses which can keep
running, even if they don't make money. They can keep making losses. This is
only possible if they happen to be owned by the government of India.
Take the case of the government operated airline Air India (Okay, I know I am
sounding like a broken record here, if you know what that means, in the MP3
era). The airline has made losses of Rs 34,689.7 crore between 2010-2011 and
2015-2016, and is still running.
Or take the case of Hindustan Photo Films, the fourth largest loss making
public sector enterprise. The company has accumulated losses of Rs 7,794.51
crore between 2010-2011 and 2014-2015. As the table shows, the losses of the
company have been going up over the years.

The Crony Socialism of Narendra Modi

| 18

Hindustan Photo Films Manufacturing Company

Year

Losses (in Rs crore)

2010-2011

1,156.65

2011-2012

1,352.32

2012-2013

1,560.59

2013-2014

1,560.59

2014-2015

2,164.36

Total losses

7,794.51

Source: Public Sector Enterprises Surveys

This is sheer waste of money. The money can be better spent on many other
things like primary education, health, roads, railways, ports, and so on. There
isn't exactly a shortage of things that the government of India needs to spend on.
And it isn't exactly going around loaded with money. In this scenario, it needs to
be careful with where and on what it spends its money on. Hence, the last thing
it should be doing is subsidising losses of public sector enterprises which have
been perpetually losing money.
The prime minister Narendra Modi in a recent interview to the Wall Street
Journal said: "You can't suddenly get rid of the public sector, nor should you."
Well, that doesn't mean that the government continues to run loss making
companies like Air India and Hindustan Photo Films. Further, Modi has been
governing for more than two years now, and if he still continues to run
companies like Air India and Hindustan Photo Films, it clearly tells us that he
has no intention of shutting them down.
The Congress led United Progressive Alliance practiced crony capitalism (the
mess at public sector banks is a clear evidence of that) as well as crony socialism
(by continuing to fund loss making public sector enterprises). While Modi has
gotten rid of crony capitalism to his credit, he continues with crony socialism.
While, we may be able to have a Congress mukt Bharat in politics, it seems
difficult to have that scenario when it comes to economics. Indeed, that is a big
tragedy.
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The Crony Socialism of Narendra Modi

It's Time Govt Admits, It Does

Not Know How to Run Air India
- By Vivek Kaul

For the year 2015-2016, the government run Air India made an operational
profit of Rs 8 crore. Anyone who has studied Finance 101 knows that operational
profit and net profit are two different things all together. Operational profit is
the profit that a company makes from its business operations. After this, the
company needs to pay interest on its debt, as well as taxes to the government.
What remains is the net profit.
In 2015-2016, Air India made a net loss of Rs 2,636 crore. This means that
between 2010-2011 and 2015-2016, the airline has made a total loss of Rs
34,689.7 crore. And that is not a small amount by any stretch of imagination.
Year

Losses (in Rs crore)

2015-2016

2,636.0

2014-2015

5,859.1

2013-2014

6,279.6

2012-2013

5,490.1

2011-2012

7,559.7

2010-2011

6,865.2

Total

34,689.7

Source: Public Sector Enterprises Survey and Ministry of Civil Aviation

Given the loss of Rs 2,636 crore, this means that the government would have
had to pour money into Air India in 2015-2016. In fact, until March 2016, the
government had already poured Rs 22,280 crore into Air India. For 2016-2017,
an equity infusion of Rs 1,713 crore has already been approved.
The question to ask is how has the airline managed to bring down its losses to
Rs 2,636 crore from Rs 5,859.1 crore in 2014-2015? The minister of civil
The Crony Socialism of Narendra Modi

| 20

aviation Ashok Gajapati Raju, told the Lok Sabha that the airline was able to cut
operational expenses by almost 11% during the course of the year and that
helped it run an operational profit of Rs 8 crore.
That is just a part of the answer and a very minor part to boot. Lets look at
some more numbers

Air India

2012-2013

2013-2014

2014-2015

2015-2016

Total revenue

18,213.79

20,140.59

20,606.27

21,315

Total expenditure

23,703.95

26,420.19

26,466.18

23,951

Net Loss (in Rs crore)

-5,490.16

-6,279.60

-5,859.91

-2,636

Year

As can be seen from the above table the total revenue of Air India has been
growing at a very slow pace since 2012. In fact, between 2014-2015 and 20152016, the airline managed to increase its sales by just 3.4%.
This isnt surprising given that it continues to lose market share. In 2013-2014,
Air India had a domestic market share of 19%. Since then, it has fallen to 16%(as
of February 2016). The airline continues to have a brand image problem and is
the airline of preference of a very few people.
That apart, the airline has managed to bring down its expenditure by 9.5% or
by Rs 2,515.2 crore, between 2014-2015 and 2015-2016. The question is how
has this happened? The simple answer to this lies in the fact that jet fuel prices
have fallen during the course of the last financial year and the airline has
benefited tremendously because of it.
In May 2015, the jet fuel price was $1.84 per gallon. By March 2016, this had
fallen to $1.07 per gallon. In fact, the price was even lower at $0.93 per gallon in
January 2016.
Further, a March 2016 PTI report quotes an Air India official as saying that in
2015-2016, the fuel bill of the company would be around Rs 5,700 crore, which
would be lower in comparison to the Rs 8,200 crore bill that the company ran up
in 2014-2015.
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The Crony Socialism of Narendra Modi

What does this mean? The company saved Rs 2,500 crore because of lower fuel
costs. And how much did the total expenditure of the airline fall by? Rs 2,515.2
crore, as I calculated earlier in the column.
Hence, the expenditure of the airline has fallen primarily because of lower fuel
prices. And this has allowed it to make lower losses and at the same time make an
operational profit. The numbers make me wonder what operational efficiency
was the civil aviation minister talking about.
Further, lower fuel prices are not within the control of the airline. And as soon
as prices start to go up, the airlines losses will start to increase as well. And the
meagre operational profit will turn into a loss.
In his reply to the Lok Sabha, minister of state for civil aviation, Mahesh
Sharma, has offered a range of reasons as to why Air India makes losses. High
fuel prices are one reason. This impacts all airlines and not just Air India. If high
fuel prices were an issue, how did Indigo make profits all these years? Further,
this cannot be reason for 2015-2016, when jet fuel prices have fallen
dramatically.
Sharma also offers other reasons for the non-performance of the airline. One
reason offered is high airport usage charges. These charges are not just borne by
Air India, other airlines shell it out as well, which in turn is recovered from the
end consumer.
Sharma then tells us that competition from low cost carriers is another reason
why airline is losing money. But this is true about all other airlines which are
operating. The competition is not just specific to Air India.
This also brings out another important point regarding competition and the
lack of success of public sector enterprises. As Dwijendra Tripathi writes in The
Oxford History of Indian Business: The profits before interest and taxes as the

percentage of capital employed in the public sector remain on an average very

lowFew of the profit-making units were operating in a competitive framework;
the bulk of the profits came from companies operating in sectors in which the
public sector employed a near monopoly position.

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This is a point made in the latest Economic Survey as well. As it points out:

The Indian aviation and telecommunication sectors of today are unrecognizably

different from what they were 20 years ago, with enormous benefits for the
citizens. Public sector companies now account for a small share of the overall
size of these sectors.
Long story short - when public sector enterprises face any sort of competition
from the private sector, their best days soon get over. Air India is a brilliant
example of that.
Sharma in his reply also blames the weakening of the Indian rupee for extreme
losses. Jet fuel has to be imported and if the rupee weakens against the dollar, the
cost of jet fuel also goes up. Nevertheless, this is a risk faced by every airline in
the world which does not earn a major portion of its revenues in dollars, and is
not just specific to Air India. Also, there are ways an airline can go about hedging
these risks.
The point being that Sharma comes up with many reasons except for the fact
that the government does not know how to run an airline. Or should a
government be running an airline in the first place? Well, if it can make
condoms, it can sure run an airline.
And honestly, any other minister, in his place, would have come up with the
same set of excuses. The fact of the matter is that a civil aviation minister
without Air India coming under him, would essentially be rendered useless.
To conclude, the Rs 8 crore operational profit, will be used as an excuse to
show the revival of the airline and keep it running. Nevertheless, as soon as fuel
prices start to go up, losses will increase. The taxpayer will continue to bailout
the airline.
Rest assured!

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The Crony Socialism of Narendra Modi

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