The News Editorial Analysis11 October 2021

Tatas will find turning around Air India tough with high fuel costs, travel hit by COVID-19.

Tata’s will have to infuse substantial equity and run two brands to optimise the Air India acquisition

Gurcharan Das, [ Director on the board of Air India and member of the Debroy Committee to restructure the railway ministry and the railway board. Earlier, he was CEO, Procter & Gamble India ]

Good news is so rare that one cherishes every sparkling droplet of it. On Friday afternoon, the ‘ghar wapsi’ of Air India was one such news – for the Tata’s, for the Modi government, for the tax-paying Indian citizen, for air travellers, and for India’s reform programme.

Air India was returned to its founders after being cruelly snatched in 1953 by a stupid act in the name of socialism. The airline ended in becoming a symbol of licence raj’s lunacy. Today it loses around Rs 20 crore daily and has accumulated losses of Rs 1 lakh crore.

But the Air India sale is not as bad as people think; nor as good. For Tata’s, it could turn out to be a courageous act of a lifetime or a disaster. Air India is India’s first privatisation after 19 years. It sends a powerful signal that India is ready to do business sensibly. Earlier, Air India failed repeatedly to be privatised because of unrealistic expectations. The lesson is to be open, flexible, and listen to potential customers. This sale is a feather in the government’s cap, making it easier to divest the vast number of companies waiting in queue.

‘Welcome home,’ Ratan Tata tweeted, greeting the sick maharajah, founded in 1932 by JRD Tata. When Jawaharlal Nehru realised his mistake, nationalising a perfectly healthy business that brought prestige to the nation, he atoned by appointing JRD Tata as chairman. Thus, Air India was able to maintain high standards for decades.

I recall a heady feeling of pride when I rode on it in the early 60s, when going to study in America. For decades, it was the world’s best airline. Today, Singapore Airlines holds that honour, thanks partly to Air India, which initially helped train its people.Air India brings many assets to Tata’s: prized slots at airports around the world, like London’s Heathrow, a fleet of 130+ planes and thousands of trained pilots and crew. India offers the world’s fastest growing air travel market, situated between two high growth centres of the Gulf and Southeast Asia. It is still underserved. There isn’t serious competition from the dilapidated Indian Railways that recently failed to attract a single entrepreneur to run private trains that might have attracted air travellers.

Air India also has significant negatives. Over the years, the loss making, cash-strapped airline has got a negative image for delays and poor service. India’s air travel market is also cut-throat with strong competition from low-cost airlines, especially formidable Indigo with 57% market share. It will need real ability to optimise costs, streamline operations, and an appetite to take heavy losses during the early consolidation. Fortunately, Tata’s have the staying power and the will to play for the long-term.

The key decision has to be about the brand. Now Tata’s have four aviation brands: two low-cost carriers (Air India Express and Air Asia) and two full-service airlines (Air India and Vistara). It will be tempting to consolidate all four under a single brand. That would be a mistake.India has two markets, each needing its own strategy and culture to win. The best solution is to go with two brands, two CEOs, each focussed single-mindedly to win its own war. Vistara and Air Asia are joint ventures. It’s important to carry partners along. This will not be easy. As to the brand name, I’d suggest the globally recognisable, Air India, despite its negative baggage. I’d retain Air India Express for the low-cost carrier.

Since most of Air India’s debt has been taken over by the government, it will be easier to turn it around. More than 90% of its losses were due to interest and depreciation. In recent years, it did make operating profit. Tata’s will have to infuse equity (around a billion dollars or so) for the turnaround. The Achilles heel is the people. In recent years, employee numbers have come down, 27,000 (in 2012) to 13,500, improving staff to aircraft ratio from 221 to 95. Fortunately, the staff is mostly over 55; they will accept retirement after a year. The key is to create two high performing organizations quickly.

There are many lessons in this story. The obvious one is that government should not run a business. Although Air India’s decline was delayed by JRD’s presence, the rot inevitably set in. The company succumbed to a bureaucratic culture. Years of service mattered more than competence for promotion. Mediocrity set in, no one willing to take a risk. When I was director of Air India, three airplanes were redundant. The board told management to sell or lease them. Three years later they were still around. Why? Because there had only been a single bidder. The fear of the CAG, CVC and CBI prevented their lease. No one was contrite for having lost the country Rs 400 crore in revenue.

Air India’s return to Tata’s is a new dawn for India’s skies. The possibility of having a world-class airline, run by a credible, passionate, employer is excellent news, both for professionals who lost their jobs when Jet and Kingfisher died and for India’s youth aspiring for aviation jobs.

Our celebration, however, is shadowed by the realisation that had Vajpayee’s government succeeded in selling it 20 years ago, the Rs 1 lakh crore spent in keeping it afloat could have been spent in making so many children’s lives through good schooling.

Farmers in east see little hope in stir; they have not got many of the benefits that the new laws threaten to take away.

They have not got many of the benefits that the new laws threaten to take away.

As the movement against the agricultural reform laws builds towards its one year anniversary, it is clear that the bulk of farmers in eastern Indian States have not been as motivated to join the agitation as their counterparts in the northwest, as they have not even experienced many of the benefits that the laws threaten to take away. In fact, farmers in these States, with densely populated rural areas, bear the double burden of low procurement as well as low prices in the open market, partly because grains procured in the northern and western States are dumped into the eastern region at subsidised rates via the public distribution system (PDS), a situation exacerbated by additional free grain distribution as COVID-19 relief.

Experts and farm leaders say reforms are needed in both procurement as well as PDS, to allow for more effective decentralized procurement, which will benefit both farmers and consumers in the region. Analysis of procurement and PDS data from 2020-21 highlights the stark divide. Government procurement of wheat and paddy in Bihar and West Bengal each account for just 2% of the national total, despite the fact that the latter is the country’s largest rice producer. However, 10% of all food grains allocated under the National Food Security Act last year went to Bihar, while 7% went to West Bengal. Uttar Pradesh and Tamil Nadu are other major States in a similar situation.

On the other end of the spectrum, Punjab accounts for a whopping 27% of all procurement, and Haryana for 11%, while only being allocated 2% and 1% of grains under PDS respectively. Madhya Pradesh, which has seen a major increase in buying by the government over the last few years, now accounts for 16% of national procurement, and only 6% of PDS allocations. States like Chhattisgarh and Odisha have a greater balance between their share of procurement and the grain allotted for PDS beneficiaries.

This reality is one of the key reasons why the scale of the movement against the farm laws, which protesting unions say will ultimately destroy the system of government procurement at remunerative rates, is so much smaller in the eastern States.

“In Punjab and Haryana, farmers are protesting because they are experiencing the benefits of the MSP procurement system and are fighting so that it is not snatched away from them. But in other States, those who have joined the movement are fighting to get the benefits in the first place. So definitely, we cannot expect the same scale,” said Hannan Mollah, general secretary of the All India Kisan Sabha, pointing out that although the MSP for paddy is set at ₹1,868 per quintal last year, most Bihar farmers were forced to sell at ₹1,500 per quintal.

“As long as the government is procuring at MSP rates in one place and then distributing the grains at subsidised PDS rates in another place, the prices will definitely be depressed in the second location,” said Himanshu, an economist at the Jawaharlal Nehru University’s Centre for Economic Studies and Planning. However, he felt that the lack of avenues for sale in eastern States was a bigger obstacle.

Former Agriculture Secretary Siraj Hussain, currently a senior fellow at ICRIER, pointed out the infrastructural challenges hampering procurement in eastern States.“There is a shortage of the necessary warehouses and godowns needed to store procured grain. When Bihar dismantled the APMC mandi system in 2006, they failed to create any formal substitute for the marketing system,” said Mr. Hussain who is also a former CMD of the Food Corporation of India. “BISCOMAUN [Bihar’s State Cooperative Marketing Unit] is in a very bad shape financially, so farmers don’t get paid on time. Apart from fiscal and physical infrastructure, the manpower needed is also not there,” he added.

Dr. Himanshu pointed out that Chhattisgarh and Madhya Pradesh provided positive models of what needs to be done.“They have reformed their PDS system and revitalised decentralised procurement,” he said, adding that there have been hurdles with getting the Centre to reimburse increased procurement due to bonuses offered by the States.“When grain is procured locally, it helps the local farming community get fair prices, it cuts costs of storage and transport for the government, and it provides PDS beneficiaries with the kind of local variety of food grains they are most used to. This is the ideal,” he added.

A ‘Taiwan flashpoint’ in the Indo-Pacific, In pursuing its Indo-Pacific strategy, India needs to be mindful of the China-U.S. equations in the region.

Context

If the rising confrontation between the United States and China erupts into a clash of arms, the likely arena may well be the Taiwan Strait.

Historical background of the Taiwan issue

The Guomindang (KMT) forces under Chiang Kai-shek lost the 1945-49 civil war to the Chinese Communist Party (CCP) in 1949. forces under Mao Zedong.
Chiang retreated to the island of Taiwan and set up a regime that claimed authority over the whole of China and pledged to recover the mainland eventually.
The CCP in turn pledged to reclaim what it regarded as a “renegade” province and achieve the final reunification of China.
Role of the U.S.:Taiwan could not be occupied militarily by the newly established People’s Republic of China (PRC) as it became a military ally of the United States during the Korean War of 1950-53.
This phase came to an end with the S. recognising the PRC as the legitimate governmentof China in 1979, ending its official relationship with Taiwan and abrogating its mutual defence treaty with the island.
Strategic ambiguity policy of the US:Nevertheless, the U.S. has declared that it will “maintain the ability to come to Taiwan’s defence” while not committing itself to do so.
This is the policy of “strategic ambiguity”.
The PRC has pursued a typical carrot and stick policy to achieve the reunification of Taiwan with the mainland.
It has held out the prospect, indeed preference for peaceful reunification, through promising a high degree of autonomy to the island under the“one country two systems”.
The “one country two systems” formula first applied to Hong Kong after its reversion to Chinese sovereignty in 1997.

China-Taiwan economic links

Taiwan business entities have invested heavily in mainland China and the two economies have become increasingly integrated.
Between 1991 and 2020, the stock of Taiwanese capital invested in China reached U.S. $188.5 billion and bilateral trade in 2019 was U.S. $150 billion, about 15% of Taiwan’s GDP.
By the same token, China is capable of inflicting acute economic pain on Taiwan through coercive policies if the island is seen to drift towards an independent status.

Prospects for peaceful reunification

Taiwan has two major political parties.
The KMT, dominated by the descendants of the mainlanders remains committed to a one-China policy.
The Democratic Progressive Party (DPP), on the other hand, is more representative of the indigenous population of the island, and favours independence.
Faced with aggressive threats from China and lack of international support, the demand for independence has been muted.
Ever since the DPP under Tsai Ing-wen won the presidential elections in 2016, China has resorted to a series of hostile actionsagainst the island, which include economic pressures and military threats.
One important implication of this development is that prospects for peaceful unification have diminished.
Sentiment in Taiwan in favour of independent status has increased.

Role of the US

While the U.S. does not support a declaration of independence by Taiwan, it has gradually reversed the policy of avoiding official-level engagements with the Taiwan government
The first breach occurred during the Donald Trump presidency.
The Joe Biden officials have continued this policy.
The Taiwanese representative in Washington was invited to attend the presidential inauguration ceremony (Biden), again a first since 1979.
Reports have now emerged that U.S. defense personnel have been, unannounced, training with their Taiwanese counterparts for some time.

Implications for Quad and India

The recent crystallisation of the Quad, of which India is a part, and the announcement of the AUKUS, with Australia being graduated to a power with nuclear-powered submarines, may act as a deterrent against Chinese moves on Taiwan.

But they may equally propel China to advance the unification agenda before the balance changes against it in the Indo-Pacific.
For these reasons, Taiwan is emerging as a potential trigger point for a clash of arms between the U.S. and China.

Iran makes 20% more enriched uranium The country was prohibited from enriching uranium above 3.67% under a 2015 deal.

As per the JCPOA deal, Iran was prohibited from enriching uranium above 3.6 per cent.

Iran has produced more than 120 kilograms (265 pounds) of 20% enriched uranium, the country’s nuclear chief said, far more than what the UN nuclear watchdog reported last month.

Mohammad Eslami said in an interview with state TV late Saturday that under the 2015 nuclear deal with world powers the other signatories were to provide Iran with 20 per cent enriched uranium needed for its research reactor.

“But it was not delivered,” he said. “If we did not produce it by ourselves this would have turned into one of our problems.”Under the terms of the nuclear deal, Iran was prohibited from enriching uranium above 3.67 per cent with the exception of its research reactor activities. Enriched uranium above 90 per cent can be used in a nuclear weapon.

In September, the International Atomic Energy Agency said Iran’s stockpile of uranium enriched to up to 20 per cent fissile purity was estimated at 84.3 kilograms (185 pounds) up from 62.8 kilograms (138 pounds) three months earlier.

Scientists estimate that at least 170 kilograms (375 pounds) of 20 per cent enriched uranium is needed to make a bomb.

The nuclear deal known as the Joint Comprehensive Plan of Action, or JCPOA, promises Iran economic incentives in exchange for limits on its nuclear program, and is meant to prevent Tehran from developing a nuclear bomb. Tehran insists its program is peaceful.

The US unilaterally pulled out of the deal in 2018 under then-President Donald Trump, but Britain, France, Germany, China and Russia have tried to preserve the accord.

Tehran’s strategy of deliberately violating the deal is seen as an attempt to put pressure on Europe to provide it with incentives to offset crippling American sanctions re-imposed after the US pullout.

President Joe Biden has said he is open to rejoining the pact. The last round of talks in Vienna ended in June without a clear result.

The many questions arising from QES data The Quarterly Employment Survey for the April-June quarter throws up some perplexing numbers.

The Labour Bureau, Ministry of Labour and Employment released the results of the Quarterly Employment Survey (QES) for the First Quarter (FQ) of 2021 (April to June).

The Quarterly Employment Survey (QES) is part of the All-India Quarterly Establishment-based Employment Survey (AQEES).
It covers establishments employing 10 or more workers in the organised segment in 9 sectors.
The9 sectors are Manufacturing, Construction, Trade, Transport, Education, Health, Accommodation and Restaurants, IT/BPO, Financial Service Activities.

Objective:To enable the government to frame a “sound national policy on employment.”
- India ratified the International Labour Organization’s (ILO)Employment Policy Convention, 1964, in the year 1998, which requires the ratifying countries to implement “an active policy designed to promote full, productive and freely chosen employment.” India does not have a National Employment Policy (NEP)
QES vs PLFS:
- While the QES provides a demand side picture,the National Sample Survey or Periodic Labour Force Survey (PLFS) gives the supply side picture of the labour market.
  - PLFSis conducted by the National Statistical Organization (NSO), MoSPI (Ministry of Statistics and Programme Implementation).
- Issue with QES Data:As the QES covers only establishments with at least 10 workers, it provides data essentially on the formal economy.
  - Considering that informal workers (with no written contracts, and benefits) account for roughly 90% of thelabour force in India, the QES thus provides only a partial glimpse of the labour market.
- Highlights of QES 2021 Data:
  - Shows a 29% increase in employmentin nine sectors during the peak Covid-19 months of April-June 2021 over a base of 2013-14 (Sixth Economic Census – EC).
  - There has been a decline in the share of female workers.From 31% in the 6^th EC (2013) to 29% in QES (2021) data.
  - Out of the 9 sectors, 7 sectors saw growth in employment while only 2 sectors (Trade, and Accommodation & Restaurants) saw a decline in employment figures.
    - The IT/BPO sector saw the most growthof 152% during 2013-2021 periods.
  - Between 1998-2021,there has been an absolute increase in employment figures. Since 1998 (4^th EC), the highest growth rate in employment (38%) was in the period 2005-2013.
    - The simple growth rate of employment between 1998-2021 has been fluctuating, and not linear.
  - All-India Quarterly Establishment-based Employment Survey (AQEES):
    - The AQEES has been taken up by the Labour Bureauto provide frequent (quarterly) updates about the employment and related variables of establishments, in both organised and unorganised segments of nine selected sectors.
      - These sectors altogether account for a majority of the total employment in the non-farm establishments.
    - There are two componentsunder AQEES:
      - Quarterly Employment Survey (QES)and
      - Area Frame Establishment Survey (AFES).
    - QESwould provide the employment estimates for the establishments employing 10 or more workers.
    - AFEScovers the unorganised segment (with less than 10 workers) through a sample survey.

Economic Census

Economic Census is the complete count of all Establishmentslocated within the geographical boundary of India.
It also provides valuable insight intogeographical spread/clusters of economic activities, ownership pattern, persons engaged, etc. of all economic establishments in the country.
It is conductedevery five years and is very crucial for framing of policies and planning for the government and other organisations.
Six Economic Censuses, (EC) have been conducted till date. The first EC was undertaken in 1977 by the Central Statistical Organization (CSO).The Second in 1980 followed by 3^rd in 1990. The 4^th edition took place in 1998 while the fifth was held in 2005. The Sixth EC was conducted in 2013.
The7^th Economic Census (7^th EC) is being conducted by Ministry of Statistics and Programme Implementation (MoSPI) since
- It is being carried out by the MoSPIin collaboration with Common Service Centre (CSC), a Special Purpose Vehicle (SPV) under Ministry of Electronics and IT.
- For the first time,an IT-based digital platform is being used for data capture, validation, report generation and dissemination.
- The 7^thEC will cover all establishments including household enterprises, engaged in production or distribution of goods/services (other than for the sole purpose of own consumption) in non-farm agricultural and non-agricultural sectors.