Privatization of Air India

Research ObjectivesThe study intends to analyze the efficiency gains resulting from privatization and how such gains can affect the airline’s financial situation.Specifically, the study will:

Review the trends of Air India’s debt as a public enterprise and hence the government’s debt as a result of subsidizing the airline

Assess the current performance of the airline in terms of profitability, capital investment, leverage and efficiency in resource utilization

Assess the fiscal effect

HypothesisH0: Privatization would have a positive effect on the efficiency of the airline, leading to improved performance, reduction in government subsidies, and a better financial position for the airlineH1: Privatization will not have any effect on the efficiency of the airline or the financial situation

Literature ReviewThe often-stated objectives of privatization run in general terms, such as developing the private sector, broadening ownership, reducing the fiscal burden, increasing economic efficiency, reducing the administrative burden, developing capital markets, assessing capital and technological markets and raising revenue for the government (Oliver and Bhatia, 1998).Concerning the performance improvement brought by privatization, the evidence is contradictory. According to the studies by Adams (1992), and Megyery and Sader (1997), there was no significant difference in performance between privatized and non-privatized firms. However, other studies (Oliver and Bhatia, 1998) found a general performance improvement post privatization. Some even argue that efficiency improvement can be misleading. The answer lies not in economic efficiency but in politics and the politically accommodating behavior of governments. According to Parker (1993), there is no overwhelming support for the notion that private enterprise is inevitably superior to public enterprise. Many a times performance improvements can be attributed to the restructuring within the organization. The general conclusion drawn from the available literature is mixed. Through one may argue for improved performance as firms change ownerships, the question that begs evidence is whether improvement is due to the change of ownership or the nature of the new ownership – i.e., private.