On September 14, 2012, the central government announced that foreign airlines would now be allowed to invest up to 49% in domestic airlines.  Under the policy announced by the government, the ceiling of 49% foreign investment includes foreign direct investment and foreign institutional investment.  Prior to investing in a domestic airline, foreign airlines would have to take approval of the Foreign Investment Promotion Board.  Additionally, the applicant will also be required to seek security clearance from the Home Ministry. In 2000, the government first permitted foreign direct investment up to 40% in the domestic airline sector.  However, no foreign airline was allowed to invest either directly or indirectly in the domestic airlines industry.  Non Resident Indians were permitted to invest up to 100%. Furthermore, the foreign investor was required to take prior approval of the government before making the investment.  Subsequently, the central government eased the foreign investment norms in this sector.  As of April 2012, foreign direct investment is permitted in all civil aviation sectors.  The Civil Aviation sector in India includes airports, scheduled and non-scheduled domestic passenger airlines, helicopter services / seaplane services, ground handling Services, maintenance and repair organizations, flying training institutes, and technical training institutions.  Foreign airlines were not permitted to invest either directly or indirectly in domestic passenger airlines.  However, they are permitted to invest in cargo companies and helicopter companies. Investment by foreign airlines in the domestic airline industry has been a long standing demand of domestic airlines.  According to the Report of the Working Group on Civil Aviation for formulation of twelfth five year plan (2012-17), India is currently the 9th largest civil aviation market in the world.  Between 2008 and 2011, passenger traffic (domestic and international) and freight traffic increased by a compounded annual growth rate of 7% and 11% respectively. The traffic growth (passenger and freight) at 18% exceeded the growth rate seen in China (9.7%) and Brazil (7.5%), and was higher than the global growth rate of 3.8%. According to the Centre for Civil Aviation, until February 2012, India had the second highest domestic air traffic growth.   However, due to the crisis faced by Air India and Kingfisher, the passenger numbers have declined in June-July 2012.  India was the only major domestic market that failed to show an expansion in demand in June 2012, as compared to the previous year.  Despite the rapid growth, the financial performance of airlines in India has been poor. According to the Report of the Working Group on Civil Aviation, the industry is expected to have a debt burden of approximately USD 20 billion in 2011-2012.  According to the same report, during the period 2007-2010 India's airlines suffered an accumulated loss of Rs 26,000 crores. According to the government, investment by foreign airlines shall bring in the much needed funds and expertise required by the domestic industry.  However, as per to some analysts, foreign investment alone cannot solve the problem.  According to them, the major cost impacting the growth of the industry is the high cost of Aviation Turbine Fuel.  As per the press release by the government on June 6, 2012,  ATF accounts for 40% of the operating cost of Indian carriers.  In comparison, fuel constitutes only 20% of the cost for international carriers. ATF in India is priced, on an average, 60% higher than international prices.  This is due to the high rate of taxation imposed on ATF by some states.  In most states, the VAT on ATF is around 25-30%.

Mr. Vaghul, our first Chairperson, passed away on Saturday.  I write this note to express my deep gratitude to him, and to celebrate his life.  And what a life he lived!

Mr. Vaghul and I at his residence

 

 

 

 

 

 

 

Our past and present Chairpersons,
Mr. Vaghul and Mr. Ramadorai

Industry stalwarts have spoken about his contributions to the financial sector, his mentorship of people and institutions across finance, industry and non-profits.  I don’t want to repeat that (though I was a beneficiary as a young professional starting my career at ICICI Securities).  I want to note here some of the ways he helped shape PRS.

Mr Vaghul was our first chairman, from 2012 to 2018.  When he joined the board, we were in deep financial crisis.  Our FCRA application had been turned down (I still don’t know the reason), and we were trying to survive on monthly fund raise.  Mr Vaghul advised us to raise funds from domestic philanthropists.  “PRS works to make Indian democracy more effective.  We should not rely on foreigners to do this.”.  He was sure that Indian philanthropists would fund us.  “We’ll try our best.  But if it doesn’t work, we may shut down.  Are you okay with that?”  Of course, with him calling up people, we survived the crisis.

He also suggested that we should have an independent board without any representation from funders.  The output should be completely independent of funders’ interest given that we were working in the policy space.  We have stuck to this advice.

Even when he was 80, he could read faster than anyone and remember everything.  I once said something in a board meeting which had been written in the note sent earlier.  “We have all read the note.  Let us discuss the implications.”  And he could think three steps ahead of everyone else.

He had a light touch as a chairman.  When I asked for management advice, he would ask me to solve the problem on my own.  He saw his role as guiding the larger strategy, help raise funds and ensure that the organisation had a strong value system.  Indeed, he was the original Karmayogi – I have an email from him which says, “Continue with the good work.  We should neither be euphoric with appreciation or distracted by criticism.” And another, "Those who adhere to the truth need not be afraid of the consequences".

The best part about board meetings was the chat afterwards.  He would have us in splits with stories from his experience.  Some of these are in his memoirs, but we heard a few juicier ones too!

Even after he retired from our Board, he was always available to meet.  I just needed to message him whenever I was in Madras, and he would ask me to come home.  And Mrs. Vaghul was a welcoming host.  Filter coffee, great advice, juicy stories, what more could one ask for?

Goodbye Mr. Vaghul.  Your life lives on through the institutions you nurtured.  And hope that we live up to your standards.

Madhavan