Economic
Highlights
New Delhi, 30 May 2015
Disinvestment Of Hotels
SHORING UP GOVT FINANCES
By Shivaji Sarkar
The Government’s decision to disinvest ITDC
loss-making hotels is more than welcome. At the same time, it raises the
question about the super loss maker – Air India? The hotels in comparison to the
national carrier are making nominal losses. It is a peculiar bureaucratic
decision in letting the bigger criminal go scot free and catching the petty
one.
Airlines are rarely a profitable
business. It is wise for the State not to enter into it and function as an overall
supervisor. Leasing it out and sharing a part of the profit is always a good
way to have the best of both worlds. The only lacuna is that it does not allow officials
to exploit and misuse the official carrier for self.
As per records available, Air India needs
about Rs 30,000 crore funding and an immediate investment of Rs 1375 crore. There
is of course no guarantee that it would ever be viable and that more of the people’s
money would not be required to keep it afloat for the so-called strategic
needs.
It is a prudent decision to disinvest
16 ITDC (Indian Tourism Development Corporation) hotels – eight of these
incurring losses for many years, including the flagship Ashok Hotel in Delhi. Together their
losses amount to Rs 22.5 crore, which rightly should be a cause for concern. Importantly,
the hotels are in prime locations. These are cynosure for the eyes of any
private business. The decision to lease out some of the loss-making units,
including Hotel Donyl Polo Ashok, in Arunachal is indeed sensible.
Eight ITDC hotels, including Janpath in
Delhi, have
recorded some profits. In the 1950s, the government had to enter the hospitality
sector as the private sector was lukewarm to virtually any kind of investment.
The government had thus to acquire the land and build the necessary
infrastructure to set the trend for world class business.
During the past decade-and-a-half, the
government exited from many properties, which included some controversial
decisions. However, this time the move is to divest without giving up the stakes.
Thus the government would continue to hold these hotels while the running
operational expenses would be borne by the lessee.
Not only does this spare the government
from incurring losses but by leasing the properties it helps generate revenue.
Further, in case the lessee defaults and doesn’t deliver, the government retains
the option to change the lessee. In the coming years, except for overall
supervision, the government may not have to spend much on these ventures. Thus
while it exits it continues to earn.
However, the Tourism Ministry has
decided to retain the highest loss-making Ashok, Delhi both for being strategically located
and being the flagship. It is hopeful that the ITDC will have plans in place
for the revival of the five-star property within one year.
Meanwhile, it seems the Ministry has
done its study well to take the disinvestment decision. If implemented
properly, there would be less chance of a controversy as it happened in the
past. Technically, the government would continue to hold the silver and also
earn, instead of losing, some money. Another aspect that the ministry has to
take care of is how best to use the large tracts of land these hotels hold,
including some joint ownership as in the case of Brahmaputra Ashok in Guwahati.
Though this may not be considered the
best business model by many, yet it is sensible. Some similar prudence needs to
be exhibited in ventures such as Air India. Till early 1950s, the
government did not have an airline. Air India was a Tata venture, which the
government decided to nationalize. There
has been in profit, at least on paper, for some time. Most of the time during
the past almost six decades, this airline has been besotted with problems and
losses were its regular feature for many reasons.
It has been termed as bottomless pit
even at times, when it was considered in its heydays. For some unknown reasons,
the government has pumped in enormous sums in this so-called prestigious
venture. Having opened up the skies to competitors like Etihad and Tata-Air Asia
joint venture, in the international sector and numerable private operators in
the domestic operations, it certainly is no more a strategic affair.
Even now it is headed by officials, who
have little knowledge of even the rudiments of civil aviation. The bureaucrats,
as per government’s own reports as well as many CAG observations, have fleeced
the national carrier, all through these decades for themselves, their families
and friends. Freebies have been a part of its culture.
Even the recent decisions of acquiring
Dreamliners, sale of some aircraft to foreign airlines at junk prices, need a detailed
probe and punishment meted out to many officials. In reality, it is an endless
tunnel. The airline incurs losses and the ‘maharajas’ flourish on government
dole.
Often, the bureaucrats cite the need
for the airline for “security” reasons such as the need to fly the prime
minister, president and other dignitaries. For such periodical operations, does
the country need to bleed like this? The Indian Air Force has been ferrying
dignitaries and is more than capable of handling demands.
It so happens that people seem to have
tremendous faith in Prime Minister Narendra Modi for taking out-of-box
decisions. One such decision for Air India would go a long way. It needs
to be leased out to anyone –Indian or foreign - on an annual lease fee,
irrespective of the profit or loss of the lessee.
This would save the government of
bothering about a sector, where it is prudent to move out. Additionally, it would
make the competition intense and the common fliers are likely to benefit with
the possibilities of less operational cost and fare.
The government should exit out of this business
to check corruption as well as save money for the exchequer, which can be put
to better use. This is all the more necessary as the public debt of Central
government is increasing. In March 2015, it provisionally increased to Rs
5,100,072 crore from Rs 5,054,804 in December 2014, an increase of 2.4 per
cent.
Exiting operations like airlines could
save the government big money. Possibly it would be taking such decision in the
coming days in the interest of its kitty and public welfare. No one would lose
a penny if the government frees itself of such ‘not so necessary’ operations.
In due course of time it would entail many changes, including a better health
for government finances.
The ITDC hotels may just be the
beginning of a new culture. The country would stand by Modi for such sanguine
decisions. --- INFA
(Copyright, India
News and Feature Alliance)
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