The runway is clear

The government has done well to finally decide on privatising the Delhi and Mumbai airports which, together, account for the bulk of international air traffic in the country.

While the 49 per cent cap on foreign investment is lower than the 74 per cent proposed by the last government, and does not allow majority control in any one investor’s hands, this should not come in the way of interested parties bidding, especially since a private Indian partner can hold 25 per cent and get into a shareholders’ agreement with foreign investors, that they will vote together.

This makes the switch from 74 per cent to 49 per cent more a matter of optics than a real change on the ground. The real question is whether any government-controlled body will be able to put a spanner in the works, because the history of such public-private partnerships as shareholders is not altogether encouraging.

Investors will have to treat this as a matter of good faith, since 26 per cent of the equity will or can be held by the Airports Authority of India, which will give it the ability to block special resolutions (and the Airports Authority, as we have seen in the recent past, is subject to capricious ministerial whim).

The devil will therefore be in the detail of the articles of association, shareholders’ agreements and such. The broad brush picture just now is that there is a green signal for going ahead and, judging by the initial responses, it is one that potential foreign investors will accept and welcome.

For investors looking for signals as to whether the new UPA government is pro- or anti-reform, this is surely a positive one. The Left parties had made some dissenting noises earlier, but the government has stuck to its chosen course while making some concessions on employment issues.

The decision to allow airlines to hold a stake in any proposed joint venture is another positive step; world over, airline companies have been significant investors in well-run airports. And since airports are the first thing any tourist or investor sees in a country, it is time India’s two largest airports reflected the country’s new face.

One should not carp when positive steps are being taken, but some of the conditions laid down for evaluating bids look disturbing. While the condition of not laying off workers for a minimum of three years may have been necessary to buy peace with the Left parties and trade unions, surely the decision to give a higher score to a company that promises to retain more staffers is taking the employment issue beyond business dynamics.

The issue of absorbing casual labour in the regular rolls, similarly, is certain to come up at some point — and gives the wrong signal about the likely changes in contract labour law.

Looking at other matters of detail, there is no clarity so far on how many slots in the duty free segments will have to be allotted, if at all, to the state-owned ITDC, and whether this will have to be at concessional prices. Nor have any formulae been arrived at so far on revenue sharing between the operators and the government.

An important issue that needs to be worked upon, in these cases, would be to get an integrated policy on land development as airports the world over are combined with exhibition grounds and commercial complexes, including hotels.