The International Monetary Fund believes the sale of Air India will constitute an important milestone in India’s privatization efforts. In the past two weeks, Tata Group emerged as the winning bidder for the debt-riddled national carrier. Tatas will also acquire low-cost carrier Air India Express and Air India’s 50% stake in equal joint venture AISATS.
Alfred Schipke, Director of IMF-STI Regional Training Institute and a former IMF India Mission Chief, told PTI in an interview that they welcome the recent agreement on the sale of Air India, which constitutes an important milestone.
“In general, to maximize the benefits from privatization, the international experience highlights the importance of medium-term privatization plans, solid regulatory frameworks, competitive markets and the buy-in of key stakeholders,” Schipke said. “As with all structural reforms during the transition, it is important to strengthen social safety nets to maximize the benefits and minimize any adverse implications.”
On the fiscal side, Schipke said it was important to highlight two areas where actions taken stand out. “First is the swift expansion of support to low-income households with the onset of the pandemic by effectively leveraging existing social support schemes. The in-kind food transfers through PM Garib Kalyan Anna Yojana, which have been extended several times since the pandemic, and later improvement of the portability of benefits through the One Nation One Ration Card system have been critical to help alleviate the significant impact of the pandemic on livelihoods.”
The second policy area, he pointed out is the authorities’ new privatization policy and asset monetization pipeline that can, if implemented successfully, improve the return from government assets and help finance much-needed public expenditure on infrastructure, health and education. “On monetary policy measures, the RBI has provided significant, broad-based and appropriate monetary easing through interest rate cuts and an accommodative stance.”
Schipke highlighted that these were aided by time and state-contingent forward guidance on policy rates and more recently, on asset purchases, to better anchor market expectations amid unprecedented uncertainties. “Various liquidity measures resulted in a cumulative injection of over 6% of GDP during February 2020 – March 2021, and helped avoid a broad-based liquidity crunch for both financial and non-financial corporates,” he said. “Among financial sector measures, the creation of the National Asset Reconstruction Company Ltd is a welcome development that shows the authorities’ efforts to secure financial stability and to address the problem of distressed bank assets.”
The IMF official added that the recent recapitalization of PSBs and the privatization of two public sector banks and one state-owned insurance company are welcome developments and further details are awaited.