Kingfisher situation an example of India’s free market/welfare state identity crisis

Last Updated: Tuesday, November 15, 2011 - 12:42

Bailout. A term which till recently was alien to India.

It was something the West did, to save their big financial institutions which had grown too big too fast and had squandered their cash positions while betting on complex instruments that even they did not fully understand.

India, and largely Asia, was rather different. We were the growth engines of the world. The Asian giants would prevent the global meltdown from getting worse and would reverse it eventually, or so went the perception.

Three years on and as the Greek crisis looms, the major Asian economies and their counterparts from around the world are still pondering on how to prevent the problems in Europe from spreading worldwide.

India, meanwhile, is facing economic and policy conundrums of its own.

From record prices of fuel, food and other essential commodities and multiple rate raises by the central bank, to a growth slowdown and a government struggling to meet its deficit targets.

Bailouts may now become a reality for Asia’s third largest economy in the post-Lehman world. The most prominent example which comes to mind is of course that of the troubled national carrier, Air India.

‘Restructuring’ a government entity is nothing more than providing it a cash lifeline at the taxpayer’s expense. Its rival, Kingisher Airlines, owned by the flamboyant beer baron Dr. Vijay Mallya, might pretty soon need a lifeline as well.

It is ironic that the high fuel prices, which were expected to cut into the savings of India’s middle class, have also taken their toll on an entity belonging to one of the richest men in the country.

To be fair, Dr. Mallya has not asked for any government help, and there are reports that the airline is looking at all alternatives to cut its USD 1.3 billion debt by more than half, including selling of property.

But if there is a chance it may not be enough for the company, which had cut 36 percent of its winter slots last week amidst reports of pilots resigning en masse, the government may have to bring commercial banks to the table to discuss possible financial assistance, as the civil aviation minister indicated last Friday.

This will draw more ire from the public, but there is no way that this will not be done if all other options fail. Rahul Bajaj might have said that “those who die, must die” in a free market economy, but recent history proves that business in India is seldom, if at all free from political interference.

Be it Jet Airways layoffs in 2008, or the Maruti Suzuki union strikes or the land acquisition controversies surrounding mining companies like Vedanta.

And the government has to interfere as the Indian society and businesses do not have the stomach for mass job cuts, liquidation and crores in bad debt, which is what may happen if Kingfisher Airlines were to go under.

For the fact is, while we may try to be ‘free market’ in our business practices, India is still very much a left leaning welfare state in its mentality.

Bureau Report



First Published: Tuesday, November 15, 2011 - 12:42

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