Jet-Etihad deal: How UPA govt has perverted its FDI policy

The controversy over the Jet-Etihad deal, into which Prime Minister Manmohan Singh made an intervention late on Tuesday, appears to be following a narrative that is disquietingly familiar to anyone who has been tracking the UPA government’s record of misgovernance - and corruption - by using policy opacity as a smokescreen to sell national resources on the cheap for private gain.

The note from the Prime Minister’s Office on Tuesday, in which he denied that the deal was in any way tainted by wrongdoing or that the government was divided on the merits of the agreement, has done nothing to clear the air. In the main, it seemed intended to merely dispel media reports that suggested that the Prime Minister had learnt from his experience from both the 2G scam and the CoalGate scam, and would spike India’s bilateral air-service agreement with Abu Dhabi if it was seen to have steamrolled merely to sweetn the private deal between Jet Airways and Abu Dhabi’s national carrier Etihad.

Even though there is as yet no evidence of corruption overhanging the latest instance, the parallels in the Jet-Etihad case and the 2G scam and the CoalGate are striking at other levels.

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In all three cases, a well-intentioned policy measure - FDI in civil aviation, allocation of coal blocks to ramp up power generation, and opening up the telecom sector - has been perverted by policy opacity and the exercise of discretionary powers to give away national resources on the cheap for private parties to reap a windfall.

[caption id=“attachment_827973” align=“alignright” width=“380”]  Has the Jet-Etihad private deal hit an air-pocket? AFP[/caption]

It is now manifestly clear that the bilateral air service agreement, as part of which Etihad benefits disproportionately - some would say in a game-changing fashion - by way of additional seats, was the sweetener that greased the tracks for the private Jet-Etihad deal, which effectively gives a down-and-out Jet Airways a fresh lease of life.

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Not every concession granted to private players gives cause for cavil. But in this particular case, it appears that the entire FDI-in-civil-aviation policy has been suborned to the fortunes of a private equity deal, from which one private airline benefits at the cost of others. And, in that process, the government has played fast and loose with what can broadly be called “national resources”. Where it should have allocated them in a transparent manner, and been governed by an elementary respect for some procedural norms, ad-hocism has prevailed, which imperils the success of the government’s FDI policy in the first place.

Additionally, the government sought to airily dismiss the well-grounded misgivings of both the Inter-Ministerial Group and the entreaties of other players in the civil aviation space - until the political opposition took up the issue. Even if some of these objections - centred around national security concerns - are a trifle tenuous, the apprehension that the two deals (the bilateral air service agreement and the private equity Jet-Etihad deals) distort the marketplace dynamics and weight the playing field to the advantage of Etihad and Jet Airways is rather harder to dismiss.

Particularly in the larger context of how the absence of a strategic civil aviation policy is playing out, this seems short-sighted in the extreme. On the one hand, the government is throwing good (public) money after bad to bail out Air India; on the other, it justifies “sweetheart deals” such as the one it has offered Jet and Etihad on the specious ground that the other airlines have to learn to cope with competition.

It is no one’s case that Air India, which has been wilfully allowed to crashland by corruption and blind policymaking in the past, needs succour. Nor is the case for greater competition a flawed one. But as it did in the Coalgate scam and the 2G scam, the government is using the smokescreen of a well-intentioned policy to trasfer national resources to privileged private parties.

In virtual every case, it is the opacity of policymaking, and the absence of clear rules, that has allowed this to happen. As former Cabinet Secretary TSR Subramanian observed on a CNN-IBN show late on Tuesday, the government’s FDI policy appears to be a case of “shoot first, aim later.” Rather than drawing up an FDI policy that establishes a level playing field for all players, the government has recklessly and in an ad hoc manner used the lubricant of a bilateral agreement to grease the tracks for one particular airline to profit from the FDI policy.

Tomorrow, if another foreign airline similarly insists that it will invest under the FDI policy only if it secures a similar sweetner, will the government play along, he wonders. And if not, won’t it have the effect of choking off all other FDI in the civil aviation sector - merely because the government unjustly enriched one player - and toyed around with marketplace dynamics in a way that disadvantages other players?

Manmohan Singh’s rear-guard action to review the decisions in this case demonstrates only one thing: that he is wiser for his experience of having had his name dragged over the coals in both the CoalGate scam and the 2G scam. In both previous cases, he knew much mischief was afoot and yet looked the other way when national resources were being given away on the cheap. Wary that the same taint will now stick to him, particularly since he gave “in-principle” approval to the decision, he now wants to be seen to be taking the objections to the deals on board. This is more than a little disingenuous.

But the UPA government’s larger failing is this: in virtually every case, it has taken a well-intentioned policy measure and perverted it with whimsical and reckless exercise of discretionary powers. In that respect, it has the inverse of a Midas touch. Whatever it touches turns to rust.