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

November 14, 2011

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 $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.

2 comments

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India may not be a “free market” but the private sectors has been given so many concessions starting from setting up infrastructure to running operations. It was the same Mallaya who asked the govt to privatise AI.

Posted by averagejack | Report as abusive

Kingfisher Airlines owned by the Liquor Baron Vijay Mallya is facing crisis after crisis,bills over due to the Oil Companies,cancellation of flights,huge out standings to its debtors both big and small, pilots leaving because of non-payment of salaries among other things.

There was a suggestion from the Civil Aviation Minister that he will talk to banks to lend money to Mallya to run the Airline.

The Central government is reported to be contemplating a bail out Plan.

Now Mallya comes on TV Live blaming every body for the state of his company,though graciously admitting(!?) that he has some problems(!),calling for reduction in Aviation fuel prices,high taxes on Fuel, non lucrative routes and Competition.

A private entrepreneur enters a business knowing all the risks.He makes profits and he does not share it with the common man or banks.

Bottom line is you have not run your business properly and that you owe money to banks , your Creditors and the Oil companies.

In short you are without money to run your business.

Does any one go to a bank and say that he has suffered a loss and would the Bank extend more money?

Would the banks agree to it?

They will attach your property and leave you with your loin cloth.

Why the different treatment to Mallya who owns one of the largest Liquor companies in India,owns race horses,owns Cricket team and has a l penchant for High and Vulgar Living?

Let him pay up or close down.

No more talk of restructuring ,job loss non sense.

India seems bent on Bail out mode in the foot steps US.

If poor people are helped by the Government it is ridiculed as ‘Welfare State‘

But bailing out criminally negligent businessmen,it is economic growth?

Posted by Ramanan | Report as abusive