Jayati Ghosh

Aug 04 : We hear a lot of talk nowadays about how Indian big bourgeoisie has come of age. The media are agog with the exploits of corporate honchos and how much they have achieved, especially in the past two decades. Those in government, both elected and unelected, increasingly see the private sector — interpreted as large corporations — as not just the mainstay of the economy but the essential means through which to achieve both growth and development. Corporate leaders themselves are among the first to proclaim and celebrate their achievements in the era of liberalisation.

These perceptions of recent success are predicated upon the notion of independence from government. Much is made of how rapidly and effectively business has grown, once it was unshackled from all the controls imposed by government. Many representatives of the more prominent recent business successes claim that their achievements are entirely their own, without any help from government.

In actuality, of course, these perceptions of independence are fundamentally misleading. Even those businesses that now claim to have done it all on their own — such as those in the IT sector, biotechnology and aviation — have been the beneficiaries of past or current government support. Publicly subsidised higher education provided them with skilled workers and professionals at rates much lower than in most other countries. State policies regarding cheap land and infrastructure provision reduced their initial costs of setting up. Prolonged tax holidays and recent tax breaks benefited such industries significantly, along with implicitly preferential credit allocation that was simply not available to most small entrepreneurs.

Several of the large business houses in India that have established international presence were able to do so because of crucial support from the Indian government. Some Indian companies who made major (and in hindsight foolish) acquisitions of other companies abroad in 2007 and early 2008, were able to do so because of high leverage achieved by borrowing from public sector banks in India. Other explicit or implicit ties are too numerous and complex to mention, but is obvious that big business continues to benefit from the government in a multitude of ways: through changes in tax and trade policy, through direct and indirect subsidies, through access to land and credit, through government procurement policies, and so on.

The global recession has further intensified demands upon the state by large business. While the bailouts in India so far may not have been as gigantic and dramatic as those seen on Wall Street, they have already cost the Indian taxpayer a significant amount of money. It is interesting to see how the same industrialists who proudly brag about their independence and maturity, and fiercely resist any attempts at government regulation of their activities, are the first to demand assistance when economic conditions turn even somewhat adverse.

These demands have become louder and more insistent in the recent past. And the tone has also come more closely to resemble blackmail, as industrialists threaten of the job losses and other collateral damage that will occur if they are forced to close. But even in this overall context of shamelessness that we are now accustomed to, the latest demands from the private airline industry are remarkable.

On July 31, 2009, a group of private airline companies threatened to go on strike for a day on August 18, unless they were immediately given a range of concessions by the government. (Note that the managers of these companies are not known for much sympathy for strikes by their own workers.) The strike was called off on August 2.

Their demands — ranging from reduction in aviation fuel prices to lower airport charges and cuts in airport development fees — would cost the public exchequer tens of thousands of crores. This would benefit a handful of airlines run by some influential and high-profile businessmen, to encourage the tiny proportion of the Indian population that is able to use private airlines to increase their consumption. No matter that this is calling for taxpayers to pay for the mistakes made by over-bullish private investors.

When aviation was deregulated in India, it led to a proliferation of private airlines and very rapid rates of growth. Capacity creation and turnover have grown at around 20-25 per cent per year over the past few years. Passenger airfares tumbled as a result of the competition between carriers, leading many to laud this as one more of the beneficial outcomes liberalisation can produce.

However, it was then argued — and is now evident — that this rapid expansion was inherently unsustainable, based on excess capacity and an unviable business model in which air fares were artificially lowered in the effort to drive out competition. This is why most domestic airlines showed losses even during the previous boom. While the airlines are now blaming global recession and higher input costs for their current woes, including estimated losses of around Rs 10,000 crores in 2008-09, the fact is that they were mostly not profit-making companies even before the current slowdown. In the circumstances, a shakeout is both necessary and inevitable.

But market mechanisms are apparently to be encouraged only when they are to the advantage of private investors. The pattern is now familiar: industrialists who are perfectly happy to demand complete freedom from all government regulation and insist that the government get out of any productive activity, are even more adamant that they deserve immediate and large bailouts from the government when they are in trouble.

The irony is that "objective" media commentators who pillory the public airline company for inefficiency and loss-making are remarkably forgiving of both the losses and the importunate demands of the private airline companies. At a time when the government’s latest Budget has shown extreme parsimony towards essential spending that affects the bulk of the population, in areas such as rural infrastructure, food distribution and primary education, it will be interesting to see how these demands of the rich spoilt kids in private aviation are going to be dealt with.

By Jayati Ghosh