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The Rediff Business Interview/ Jayant Malhoutra

'The Tata project was scuttled to protect a private airline'

Ever since the Tatas called off plans to float a domestic airline on September 1, several industrialists and parliamentarians have expressed ire over the Union government's role in the matter. As convener of the United Parliamentary Group that supported the project, Jayant Malhoutra, a Rajya Sabha member and industrialist, is one of the government's most vocal critics.

He contends that the Tata withdrawal will send wrong signals to foreign investors and neutralise the positive impact of the success of the Resurgent India Bonds. A day after the Tatas' announcement, Malhoutra took the government to task in an interview with Syed Firdaus Ashraf.

Do you think the withdrawal of the Tata proposal will adversely affect the ongoing liberalisation of Indian economy?

Yes, it does not send a good message to foreign institutional investors. Just two weeks ago, the Resurgent India Bonds issue proved a big success. The RIB success definitely sent a good message to the FIIs and other investors. But unfortunately, the withdrawal of the Tata project has once again planted doubts in the minds of investors. It is unfortunate that we have a very weak aviation minister in Ananth Kumar of the Bharatiya Janata Party. I think he was pressurised by some of his more powerful colleagues in his party to disapprove the project.

Do you think the Tatas' decision was hasty, considering that the BJP-led coalition government has been power for only five months?

I don't think that five months is a short period. The government has stipulated certain guidelines, rules, parameters for setting up an airline. Anyone whose proposal is transparent and conforms to government guidelines should be allowed to form an airline. There is no reason why this project should not have been cleared.

Do you think a five-month-old government could have cleared a three-year-old controversial project?

(Angrily) What is so controversial about it? It has become controversial because it has been purposely made to be controversial by a private airline that is lobbying against it. On top of that, political godfathers of this airline have been opposing the Tata project. The same thing happened with the previous regime. I think it's unfortunate that the BJP government which says it is different from other governments, is not really different.

Does this issue signify that swadeshi is back on the BJP's agenda?

It is not important what the ruling party may say. But it is important what you do and how you act. And their actions have proved that they are no different from the earlier governments.

There were fears that the Tata airline would have adversely affected Indian Airlines.

That is just a notional reason. The main reason is that they wanted to protect a private airline.

Private airline?

I would not like to name it. The point is that Indian Airlines has been in the business for the last 40 years. Indian Airlines has about 55 aircraft. Tata Airlines would have had only seven. Surely, Indian Airlines won't be affected.

In our country, the quality of service on offer to the incoming tourist is very poor. And another point is that the availability of seats is very low. You don't get seats in many sectors. So, I don't think there is a risk to Indian Airlines. When we say that we are all for globalisation, then all the public sector units must adjust to world standards. And if they do not restructure, they will fail to compete and shut down their operations. So, this is all part of the game.

It is said nowhere in the world do foreign companies operate in the domestic sector. What is the case for this to be different in India?

There is no foreign company involved in the Tata project. There is no investment of Singapore International Airlines. There are some FIIs investing up to 40 per cent. And there is no airline investment.

Former aviation minister Chand Mahal Ibrahim told Rediff On The NeT that the Tata project had a hidden agenda.

He is only articulating his own hidden agenda.

But then, other aviation ministers such as Ghulam Nabi Azad and Jayanti Natarajan opposed the project. Do they, too, have any hidden agenda?

I think the people who have been trying to influence the government by not allowing sound companies to invest in India, have succeeded.

You know, we have got 19 members of the Rajya Sabha in the United Parliamentary Group. Our view is that the Government of India has set some guidelines for investment in the aviation sector. And if a company agrees within those guidelines, they must get a licence to start operations. Otherwise, you ban all of them. You cannot discriminate. After all, the Tatas have not violated any guidelines. If my group had been involved in this project, I'd have withdrawn long back. It's sad that a group like the Tatas are being treated in this manner in our own country.

Indian Airlines unions allege that the Tata project would have sparked severe competition in a recessionary market and led to downsizing in their company. They claim that the Tata airline would not have created more than 12,500 jobs.

You see, Tata Iron and Steel Corporation employs 65,000 people who produce 3.5 million tonnes of steel. In South Korea, they produce 50 million tonnes of steel and employ only 14,000 people. Now, Tisco will have to rationalise in three or five years to face global competition. Either you increase the production or reduce the number of employees; otherwise, you cannot compete in the world market.

When the objective of the government is to globalise, they will have to consider the factor of employee per plane. They will have to conform to international norms in every industry.

Talking of globalisation, is the world heading towards a global recession?

I don't think the world is heading in that direction. Debt equity ratio in India is 2:1 or 1-1/2 : 1. In Korea, it is 5:1. In Hyundai company, it is 9:1. So, I think, they will have to readjust and focus. I think, a group like Hyundai will have to shed some of its companies and bring down its debt-equity ratio. So, this kind of revamping will have to take place.

(Pauses). I don't think we are heading for a global recession. Russia has its own problems. And it is a classical example where they globalised too fast. From a central economy to market economy, they moved too fast in four years. Probably, they needed ten years for that and as a result of that the whole economy has collapsed. It is not because of recession.

The reason for the economic collapse of Russia is that at least $ 300 billion has been taken out from that country. I know that the Russian rich and the mafia are sitting in all the big capitals of Western countries and buying up prime property. So, money is going out of Russia. There was no system when they opened up their economy in the post-Soviet Union.

So, I don't think we are heading for a global recession. A different kind of readjustment is taking place in different countries. And different countries have different problems. Take Indonesia, for example. The news reports say that the former president, Suharto, had taken $ 40 billion out of the country.

Finance Minister Yashwant Sinha has said the economy will revive by September-end.

I'm not at all impressed by his economic pronouncements. I think it will take more time. The government should take positive measures for reviving the economy. They will have to devote more time to develop the economy. At the moment, steel, paper and other segments of the industry are facing a recession.

The main reason is that the Indian companies cannot compete with the international market. Secondly, I think the government must invest in infrastructure. I mean, infrastructure should see real investment, not mere lip service. If that happens, the real money will come, that too after six months.

Do you think the Tatas' proposed investment would have helped revive the economy?

Yes, it would have improved the FIIs' sentiment. They would have felt that our economy is heading in the right direction.

There has been no official government reaction to the Tata pull-out.

I think within the government itself, there are differences. For instance, the industry ministry was supportive while the civil aviation ministry was opposing it. I believe the civil aviation minister is very weak and was not able to resist the pressure from his colleagues.

There is a view that the Tata airline may or may not have proved successful, considering that others like Damania, Skyline NEPC and EastWest closed shop in the past soon after launching operations.

I don't know. But I think the returns would have taken some time. But, do not forget, they are the pioneers in this business and JRD (Tata) had started Air-India. Moreover, the Tatas always believed that they would have clicked. But, I really cannot comment whether the project would have clicked.

Former industry minister Murasoli Maran has said that vested interests have scuttled the project. Do you think the lobby factor is crucial?

We are talking about liberalisation and transparency. We are only talking and nothing is happening. I think an effective government must cross the stage of just talking and get into the action part of it. Until they act, the right signals will seem elusive. And the BJP's action unfortunately has not been different from previous governments. I think the government says something and does exactly the opposite.

The lobbying factor -- how important is it?

Lobbying has always been there. But not this kind of lobbying where the lobbyists are directly able to divert the functioning of the government.

Lobbying is something through which industrialists explain their viewpoint and try to improve government policy.

But once the policy is framed, it is in statute. Then its implementation is transparently done. It is not subject to any lobbying. Whether you apply or I apply, as long as the rules are adhered to, we both are entitled to get the licence.

The government can say we may not allow two more or three more licences. Or they can say that for five years, there will be no more players in the business. Or something like, let the existing players establish, we will open up later.

But unfortunately, this has never been the policy of the government. They open up and formulate the norms. And, if a group like the Tatas applies in full adherence to the norms, the government has no right to deny them the licence. If the government says that they are transparent, they must say what mistakes the Tatas have committed. The Tatas have totally abided by the norms of the civil aviation ministry. So, I think there should have been no problem in approving this project.

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