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)