Question

Was privatisation of Air India necessary? With the example of Air India, explain the advantages and disadvantages of privatisation.

Answer 1

Instructions: Define privatisation.

Compare privatisation and nationalisation

Explain the advantages and disadvantages of privatisation with reference to Air India.

Solution: Privatisation refers to the transfer of ownership, management and control of a public sector company to a private sector company.

When the government gives up a part of its ownership and control of a public sector company to a private sector company, it is called disinvesntment.

Let us now discuss the need for privatising Air India.

• Inefficiency of the government

Since private enterprises have a greater incentive to cut costs and be competitive in the market, in most situations, they operate more efficiently than a public sector company.

• Improved financial management by private sector

Since private sector companies operate more efficiently, they perform better financially than public sector enterprises. If they do incur losses for a sustained period, they loose the confidence of the public and go bankrupt.

For example; Air India had a total debt of 61,000 crore rupees. To keep the airline functioning, the government kept on bankrolling the airline and incurred losses on a daily basis of about 20 crore a day. The same money incurred in losses could have been utilised for some other central government scheme on education and heath sectors. If Air India was a private sector company, it would have declared insolvent/bankrupt long ago. It’s losses would not have spiralled to 61,000 crore.

• Political interference in the management of the company

Undue political interference lead to the management of the company in several ways.

For example: The bureaucrats responsible for the management of the airline failed to take key decisions to keep the airline competitive in the market. Faulty aircraft configuration, failed merger with Indian airlines, and its inability to accept change led to the company’s downfall. If Air India was a private company, accountability would have been fixed. The people responsible for managing the airline would have been fired long before the company’s condition was made this worse.