Why Modi Govt shouldn’t sell Air India, BSNL, MNTL

Rethink about selling AI, BSNL and MTNL; Strategic assets must remain in Indian hands

Privatisation of these companies will leave India at a disadvantage as it is not without any major security implications that they will be taken. These are the decisions no other country has taken says journalist Mantoo Banerjee in a recent article.

The mounting debts of three of India’s state-owned enterprises — two in telecommunications and one in civil aviation — are a matter of great concern. Since 2017 , the Modi government has been working on how to reduce the government’s financial liability in these enterprises.

The ongoing narrative is this : BSNL and MTNL  appear to be in a debt trap. Their future business prospect looks rather dim due to lack of 4G spectrum. They have few new customers. Many of the existing customers are moving to private sector operators Vodafone, Reliance Jio and Airtel.

Yet, the fact is, says Banerjee, that BSNL and MTNL have the lowest debt among all telecom operators. BSNL, which has a debt of ₹14,000 crore, has sought 4G spectrum across India through equity infusion of ₹7,000 crore. The total cost of the spectrum will be ₹14,000 crore. Both firms have asked for a VRS for employees similar to the Gujarat model. The VRS scheme for BSNL and MTNL will have a respective revenue impact of ₹6,365 crore and ₹ 2,120 crore.

 BSNL, once part of the government’s telecom department, carries a large strength of employees. It is also the country’s only telecom company to have an integrated process between fixed and mobile telephone services and the Internet.

What the government does with BSNL and MTNL, finally, is up to PM Modi. But,  any move to sell India’s strategic telecom asset to foreign operators will not be without major security implications to the nation. No major country in the world is known to have surrendered its strategic telecommunications network to foreign players.

Leading telecom companies in the world are held and controlled by either the government or local players. They include China Mobile, the world’s largest with 925 million customers and market value of $217 billion, Verizon Communications Inc. and AT&T of the US, Vodafone Group Plc of the UK, Nippon Telegraph & Telephone Corp. and Softbank Group of Japan, Deutsche Telekom AG, and Telefonica SA of Spain.

Strictly speaking, of the country’s three private sector telecom companies only Reliance Jio is Indian. Banerjee recalls  that fairly recently,  the people of Italy, a prominent member of European Union and G-7, fought staunchly to prevent an almost certain takeover of its heavily debt-burdened Telecom Italia by Germany’s Deutsche Telecom. Olivetti SpA., a former typewriter maker, came to the rescue of the Italian telecom company in a David-versus-Goliath struggle.

The takeover transformed itself into Italy’s No. 2 telephone company. Olivetti lured enough Telecom Italia shareholders with a $65 billion package of cash and securities to gain at least 51 percent of Telecom Italia’s stock. The victory wrecked Telecom Italia’s hastily arranged marriage proposal to Deutsche Telekom, Germany’s biggest phone company.

Despite the EU association, the people of Italy did not surrender their telecom outfit to a German bidder. Now, it is to be seen what the Narendra Modi government, in its second term, does to tackle the financial problem of BSNL and MTNL. The best thing the government can do is to merge the two companies and run the outfit itself.

The story of Air India, also a major national strategic asset, is also alarming. The government appears to be prepared to sell the country’s key domestic and international operator even to an Arab buyer. Air India’s sale to a foreign buyer will be like the sale of India’s skies, says Banerjee.

The Congress government’s policy of privatisation of the civil aviation sector in the 1990s did not help create any major private Indian airline. Instead, the then government doggedly fought against a Tata proposal to re-enter civil aviation operation for unknown reasons. The Tata group was the original owners of Air-India before it was nationalised by the Nehru government In 1953 under the Air Corporations Act though its founder JRD Tata was allowed to continue as a non-executive chairman till 1977. The government’s civil aviation policy brought mostly fictitious NRI investors to make quick bucks from India’s fast growing civil aviation market.

Barring the case of Indigo, currently the country’s No. 1 airline, most NRI investors collapsed and dumped their airlines, but not before inflicting heavy debt burdens on India’s public sector banks and local stakeholders. The latest collapse of Jet Airways has sent the country’s civil aviation business almost topsy turvy. Should Air India go to such a foreign buyer, who chooses to dump the airline, India’s civil aviation sector may collapse leading to a major security implication. The foreign buyer can transfer its stake to any one abroad, which may have indirect link with an unfriendly neighbour. What will India do then?

Airlines business has its ups and downs. And, as in the case of BSNL, Air India is also not the world’s most debt-trapped airline. Only last year, Norwegian Airline faced an “unsustainable level of debt.” This is despite the fact that Norwegian became the largest non-US airline on transatlantic routes in the New York market.

By carrying 1.67 million passengers, it surpassed British Airways, Emirates, Lufthansa, Air France and many others in the populous market. Few countries have dumped their domestic or national carriers on account of debt burden to benefit foreign operators.

Like Air India, American Airlines resorted to heavy borrowing to upgrade its fleet. This strategy caused Americans’ debt burden to balloon to $16.8 billion. The vast majority of that spending went toward new planes. However, American is not on sale. The most amazing recovery story is that of Indonesian airline Garuda, which suffered a loss of $64.2 billion in 2017.

On April 1, Garuda’s financial report to the Indonesia Stock Exchange (IDX) showed a net profit of US$809,846 in 2018. This is to suggest that the Modi government must have patience with the current Air India management for the airline’s recovery instead of rushing to find a foreign buyer for the country’s strategic asset.