The International Monetary Fund (IMF) on Monday said the sale of national carrier Air India will constitute an “important milestone” in India’s privatisation efforts.
Tata group has emerged as the winning bidder for the loss-making Air India, and on October 11, a letter of intent (LoI) was issued to the group.
“We welcome the recent agreement on the sale of Air India, which constitutes an important milestone,” Alfred Schipke, Director of IMF-STI Regional Training Institute and a former IMF India Mission Chief, told a news agency.
Earlier this month, the government accepted an offer by Talace Private Limited, a unit of Tata group, to pay Rs 2,700 crore cash and takeover Rs 15,300 crore of Air India’s debt.
After Tatas accept the Letter of Intent (LoI), the share purchase agreement (SPA) for the sale will be signed. Along with Air India, Tatas will acquire low-cost carrier Air India Express and Air India’s 50 per cent stake in equal joint venture AISATS.
“In general, to maximise the benefits from privatisation, the international experience highlights the importance of medium-term privatisation plans, solid regulatory frameworks, competitive markets and the buy-in of key stakeholders,” Mr Schipke said as the IMF released its annual report on India.
As with all structural reforms during the transition, he said it is important to strengthen social safety nets to maximise the benefits and minimise any adverse implications.
The annual report lists more than 130 key policy actions that have been undertaken by the Indian government in the last one year as part of efforts to liberalise and reform the country’s economy.
“On monetary policy measures, the RBI has provided significant, broad-based, and appropriate monetary easing through interest rate cuts and an accommodative stance,” Mr Schipke said.
These were aided by time and state-contingent forward guidance on policy rates and, more recently, on asset purchases, to better anchor market expectations amid unprecedented uncertainties. Various liquidity measures resulted in a cumulative injection of over six per cent of GDP during February 2020–March 2021 and helped avoid a broad-based liquidity crunch for both financial and non-financial corporates, he added.
“Among financial sector measures, the creation of the National Asset Reconstruction Company Ltd is a welcome development that shows the authorities” efforts to secure financial stability and to address the problem of distressed bank assets,” the IMF official said.
Furthermore, he said the recent recapitalisation of public sector banks (PSBs) and the privatisation of two public sector banks and one state-owned insurance company are welcome developments and “we await further details”.