The trust vote drama in Karnataka has hit the national headlines. The incumbent chief minister, B.S. Yeddyurappa appears to have won the first round. It remains to be seen how the BJP responds to the governor’s direction that a second trust vote be held by the 14th of this month. In the 225-member Karnataka assembly, the ruling BJP had a wafer-thin majority since the 2008 assembly elections. And it was not surprising to find that some political forces in the state felt that there was an opportunity to unseat the government. But what has transpired over the past few days has once again reminded citizens of the ugly side of politics. Leading up to the trust vote, the governor of Karnataka wrote a letter to the speaker of the Karnataka assembly asking that no MLAs be disqualified before the trust vote was conducted on the floor of the assembly. Subsequently, there have been a number of allegations about the conduct of the trust vote itself. The governor openly called the trust vote “farcical”, and wrote to the Centre asking that President’s Rule be imposed in the state, before he directed the government to prove its majority again. This phenomenon of trust votes is not uncommon in our dynamic political culture. Just before the 2009 general elections, the BJD and the BJP had differences over seat-sharing in Orissa. The BJP decided to withdraw support to the Naveen Patnaik government. The BJD passed the floor test by a voice vote. While the opposition claims that the process was not fair, the BJD leadership has maintained that there was no request for a division, which would have required recorded voting. The relatively small Goa assembly has seen a number of similar occurrences in the recent past, with governments changing as a result. But there are some critical issues that merit examination. In some recent trust votes, there have been allegations that large amounts of money have been exchanged. Of course, following the 2008 trust vote in the Lok Sabha on the India-US nuclear agreement, the infamous cash-for-votes scam broke out, with wads of cash being shown on the floor of the House. In the Karnataka trust vote, too, there have been allegations that large amounts of money have changed hands. The second issue is how some of these trust votes are managed on the floor of the House. Both the recent Orissa episode and the ongoing Karnataka one have been very contentious about the procedure that has been used to prove the majority. In both cases, the opposition alleged that they asked for a division, which would require a physical count of votes rather than just a voice vote, and in both cases a division was not held. A parallel issue which needs to be kept in mind is the governor’s power to ensure compliance with procedure in the state legislatures. The third issue that needs some discussion is whether the decision on defections should be judged by the speaker, usually a member of the ruling party or coalition, or by a neutral external body, such as the Election Commission. In the latest episode in Karnataka, the speaker has disqualified MLAs on the ground that they have voluntarily exited the party under which they were elected. In a 1994 case (Ravi S. Naik v. Union of India), the Supreme Court ruled that the words “voluntarily giving up membership” have a wider meaning. An inference can also be drawn from the conduct of the member that he has voluntarily given up the membership of his party. There is a huge paradox in the anti-defection law that was passed 25 years ago. While MLAs and MPs vote along party lines on ordinary legislation, they do not appear to be daunted by the consequences in the case of trust votes. So, in effect, the anti-defection law appears to be effective in controlling members of all parties on policy-making — which could in fact benefit from more open input from across party lines — but ineffective in several cases with regard to trust votes. Clearly, there is much more at stake for all concerned in trust votes, and therefore the scope for greater negotiation. Politics in our large and complex democracy is fiercely competitive. Dissidence is to be expected because there are too many people vying for too few of the top positions. While there are no perfect solutions, the only sustainable and meaningful approach is to encourage inner-party democracy so as to enable a selection process for positions of responsibility that is accepted as free and fair by all concerned. While the political uncertainty continues, the only certainty for India’s citizens is a very unhealthy politics for some time to come. - CV Madhukar This article was published in Indian Express on October 13, 2010
Recently there have been news reports about the NITI Aayog submitting its recommendations on improving the financial health of Air India to the Ministry of Finance.[1],[2] The Civil Aviation Ministers have also mentioned that the Ministry will soon propose a roadmap for the rejuvenation of the national airline. While the NITI Aayog report is not out in the public domain yet, we present a few details on the financial health of the airline.
Finances of Air India
In 2015-16, Air India earned a revenue of Rs 20,526 crore and registered losses of Rs 3,837 crore. As of March 31, 2015, the total debt of Air India was at Rs 51,367 crore.[3] This includes Rs 22,574 crore outstanding on account of aircraft loans. The figure below shows the losses incurred by Air India in the last few years (2007-16).
According to the Ministry of Civil Aviation, reasons for Air India’s losses include: (i) the adverse impact of exchange rate variation due to the weakening of Indian Rupee, (ii) high interest burden, (iii) increase in competition, especially from low cost carriers, and (iv) high fuel prices.[4] The National Transport Development Policy Committee (NTDPC), in its report in 2013, had observed that with the increase in the number of airlines in the market, Air India has been struggling to make a transition from a monopoly market to a competitive one.[5] These struggles have been primarily regarding improving its efficiency, and competing with the private airlines.
Turnaround Plan and Financial Restructuring
In order to bail out the company, the government had approved the Turnaround Plan (TAP) and Financial Restructuring Plan (FRP) of Air India in April 2012.[6] Under the plans, the government would infuse equity into Air India subject to meeting certain milestones such as Pay Load Factor (measures capacity utilisation), on time performance, fleet utilisation, yield factor (average fare paid per mile, per passenger), and rationalisation of the emolument structure of employees.7 The equity infusion included financial support towards the repayment of the principal, as well as the interest payments on the government loans for aircraft acquisition. Under the TAP/FRP, the central government was to infuse Rs 30,231 crore till 2020-21. As of 2016-17, the Ministry has infused an equity amount of Rs 24,745 crore.[7]
In 2017-18, the Ministry has allocated Rs 1,800 crore towards Air India which is 67% of the Ministry’s total budget for the year.[8] However, this amount is 30% lower than the TAP commitment of Rs 2,587 crore.3 In 2016-17, while Air India had sought and equity infusion of Rs 3,901 crore, the government approved Rs 2,465 crore as the equity infusion.[9] The Standing Committee on Transport, Tourism, and Culture examining the 2017-18 budget estimates noted that reducing the equity infusion in Air India might adversely affect the financial situation of the company.[10] It recommended that the government must allocate the amount committed under TAP. The Ministry had also observed that due to reduction of equity infusion, Air India has to arrange funds through borrowing which costs additional amount of interest to be paid by the government.[11]
As per the Ministry, Air India has achieved most of the targets set out in TAP.[12] Despite running into losses, it achieved an operating profit of Rs 105 crore in FY 2015-16.[13] Air India’s performance in some of the segments are provided in the table below.
Table 1: Air India’s performance
| 2011-12 | 2014-15 | |
| Overall Network On Time Performance (measures adherence to time schedule) | 68.2% | 72.7% |
| Passenger Load Factor (measures capacity utilisation of the airline) | 67.9% | 73.7% |
| Network Yield achieved (in Rs/ RPKM)* | 3.74 | 4.35 |
| Number of Revenue Passengers (in million) | 13.4 | 16.9 |
| Operating Loss (in Rs crore) | 5,139 | 2,171 |
* Note: RPKM or Revenue Passenger Kilometre performed refers to number of seats for which the carrier has earned revenue.
Sources: Lok Sabha Questions; PRS.
The NTDPC had observed that with its excessive and unproductive manpower, failure to invest in the technology required to keep it competitive, and poor operations, Air India’s future looks risky. It had also questioned the rationale for a national airline. It had suggested that the government must frame a decisive policy with regard to Air India, and clarify its future accordingly.5 It had recommended that Air India’s liabilities should be written off and be dealt with separately, and the airline should be run on complete operational and financial autonomy.5
Need for competitive framework in the sector
With the entrance of several private players in the market, the domestic aviation market has grown significantly in the last decade. The market share of an airline is directly related to its capacity share in the market. While private carriers have added capacity in the domestic market, the capacity induction (adding more aircrafts) of Air India has not kept up with the private carriers. This has resulted in decrease in market share of Air India from 17% in 2008-09 to 14% in 2016-17.[14]
The Committee looking at the competitive framework of the civil aviation sector had observed that the national carrier gets preferential treatment through access to government funding, and flying rights.[15] It had recommended that competitive neutrality should be ensured between private carriers and the national carrier, which could be achieved by removing the regulations that provide such preferential treatment to Air India. The NTDPC had also noted that the presence of a state-owned enterprise should not distort the market for other private players.6 It had recommended that the Ministry should consider developing regulations that improve the overall financial health of the airline sector.
While Air India’s performance has improved following the TAP, along with the equity infusion from government, its debt still remains high and has been gradually increasing. In light of this, it remains to be seen what the government will propose with regard to the rejuvenation of the national airline, and ensure a competitive and fair market for all the players in the airline market.
[1] “Govt to prepare Air India revival plan within 3 months, amid calls for privatization”, Livemint, May 31, 2017, http://www.livemint.com/Politics/0koi5Hyidj1gVD3wOWTruM/Govt-says-all-options-open-for-Air-India-revival.html.
[2] “Air India selloff: Fixing airline’s future is more important than past”, Financial Express, May 31, 2017, http://www.financialexpress.com/opinion/why-fixing-air-indias-future-more-important-than-past/693777/.
[3] Lok Sabha Questions, Unstarred question no 382, Ministry of Civil Aviation, February 25, 2016, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=28931&lsno=16.
[4] Lok Sabha Questions, Unstarred question no 353, Ministry of Civil Aviation, November 17, 2016, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=40733&lsno=16.
[5] “Volume 3, Chapter 3: Civil Aviation”, India Transport Report: Moving India to 2032, National Transport Development Policy Committee, June 17, 2014, http://planningcommission.nic.in/sectors/NTDPC/volume3_p1/civil_v3_p1.pdf.
[6] “Government Approves Financial Restructuring and Turn Around Plan of Air India”, Press Information Bureau, Cabinet Committee on Economic Affairs (CCEA), April 12, 2012, http://pib.nic.in/newsite/PrintRelease.aspx?relid=82231.
[7] Lok Sabha Questions, Unstarred question no 472, Ministry of Civil Aviation, April 6, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=51752&lsno=16.
[8] Notes on Demands for Grants 2017-18, Demand no 9, Ministry of Civil Aviation, http://indiabudget.nic.in/ub2017-18/eb/sbe9.pdf.
[9] Lok Sabha Questions, Unstarred question no 4809, Ministry of Civil Aviation, March 30, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=51108&lsno=16.
[10] “244th report: Demand for Grants (2017-18) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, March 17, 2017, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Transport,%20Tourism%20and%20Culture/244.pdf.
[11] “218th report: Demand for Grants (2015-16) of Ministry of Civil Aviation”, Standing Committee on Transport, Tourism and Culture, April 28, 2015.
[12] Lok Sabha Questions, Unstarred question no 307, Ministry of Civil Aviation, February 25, 2016, http://164.100.47.190/loksabhaquestions/annex/7/AU307.pdf.
[13] Lok Sabha Questions, Unstarred question no 1566, Ministry of Civil Aviation, March 9, 2017, http://www.loksabha.nic.in/Members/QResult16.aspx?qref=47532.
[14] Lok Sabha Questions, Unstarred question no 312, Ministry of Civil Aviation, March 23, 2017, http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=49742&lsno=16.
[15] Report of the Committee Constituted for examination of the recommendations made in the Study Report on Competitive Framework of Civil Aviation Sector in India, Ministry of Civil Aviation, June 2012, http://civilaviation.gov.in/sites/default/files/moca_001870_0.pdf.
