That the state-owned Air India has earned operating profit of Rs 100 crore in the financial year 2015-16 may be a news given its long history of heavy losses but not a headline grabbing one given the smallness of profit and the incomplete picture operating profits give. And certainly not the kind of news that warrants announcement by the Prime Minister in his address to the nation on the August occasion of its Independence Day. He also, for good measure, did not forget to mention in the same speech with the same touch of pride the supposed BSNL turnaround story.
The problem is not so much with Modi shouting from rooftops the incipient and transient success of two public sector enterprises (PSE) but the more disturbing signal it sends-- -- the government is not very keen on stepping up the gas on its disinvestment agenda but somehow keen on rationalising its blind faith in PSE. In fact the NDA II has been going slow on disinvestment unlike NDA I under the leadership of Atal Behari Vajpayee which privatised the aluminium PSE firm Balco, Hindustan Zinc, Hindustan Copper, VSNL and Computer Maintenance Corporation. Modi made no secret of his fondness for PSEs when on campaign trail for the 2014 Lok Sabha elections, he often cited the GSFC successful turnaround story in Gujarat under his leadership as chief minister to implicitly build a case for PSEs.
To be sure, a strong case existed for the public sector especially in areas where capital was shy. Setting up of Steel Authority of India (Sail), Bhel etc therefore wasn’t wrong. Even Air India and Indian Airlines had reason to take wings because in those days the skies weren’t open for the private sector. But none of them have a rationale to go on and on despite the mounting losses. Government resources tied up in PSEs can be more productively used in subsidising the basic requirements like food, gas, electricity and other bills of the poor.
That operating profits do not tell the full story is evident from Air India’s own estimates that the airline would have still declared a net loss of Rs 3,529.8 crore during FY16 despite being profitable at the operational level. The Indian Railways too makes a small operating profit year after year with the operating ratio hovering between 92 percent and 96 percent. Operating profits hide more than they reveal with financial overheads which any day is huge for any modern organisation being swept under the carpet.
It seems Finance Minister Arun Jaitley has a more reasonable take on the issue of privatisation as evident from his statement that his government was open to privatising 79 sick public sector units with accumulated losses of Rs 55,656 crore as of 2012-13. As per the latest figures, the 157 CPSEs audited by the CAG have accumulated losses of Rs 1,10,285 crore. In 2012-13, MTNL, BSNL and Air India together accounted for about Rs 18,000 crore of loss out of a total CPSU loss of Rs 28,562 crore, with Air India being the second highest loss-maker after Bharat Coking Coal.
The point is one swallow does not make a summer. Air India’s small operating profit in 2015-16 is just a blip though arguably on the back of propitious oil market, innovative marketing and a little more judicious use of its fleet. But the larger issue is should the government be locking up its capital in areas where the more nimble-footed private sector is snapping at. Cynics aver that PSUs like Air India and BSNL with humungous accumulated losses will not elicit investor interest unless offered virtually on a platter but they couldn’t be more wrong because these companies bring with them infrastructure sedulously built over the years.
At any rate, the capital freed up from these fund guzzlers can be effectively used in addressing the problem of last mile connectivity Modi talked about fervently in his Independence Day address be it in providing gas or electricity to the rural households.