Public assets sale and the concern of ‘fiduciary duty’


  • Recently Indian government handed over the loss-making national carrier Air India to the Tata Group in a major privatisation drive.

The Air India privatisation controversy:

  • It is a move that evoked a mixed response. While some hailed it on the assumption that it would no longer spell a further loss to the exchequer, its opponents felt that a national asset was being sold at a throwaway price without transparency by the government.
  • In 2021, Tata Sons was declared the winner of the bid for the airline for consideration of ₹18,000 crores; the Tatas would retain ₹15,300 crores of Air India’s debt and pay ₹2,700 crores in cash to the Government. The seller, the Government of India, would retain a liability of ₹46,262 crores that was transferred to a special purpose vehicle (AIAHL) — thereby passing on the liability to individual taxpayer citizens. Thus, what was technically sold was just aircraft routes/ landing rights and some core assets of Air India, and not Air India per se.

Sale of an enterprise vs Asset sale:

  • The sale of an enterprise is different from the sale of its assets (otherwise known as ‘asset sale’), where in order to unlock the value of assets, liabilities are retained by the seller either by himself or through a special purpose vehicle, and assets are sold for a competitive price, as otherwise, the liabilities will surpass the value of the as­sets, rendering the enterprise value to negative.
  • While an asset sale is normal in a corporate private transaction, the Government needs to exercise caution when selling a national asset to a private player. In a private asset sale, there are independent checks and balances, such as regulatory approvals, and the consent of the secured creditors (mostly banks) who will give their consent to park the liability only when they are satisfied that the promoters or the shareholders of the private enterprise would be able to satisfy the liabilities either from the proceeds of the sale or otherwise. 
  • In a typical asset sale by the Government, these approvals are a mere formality. When the debt is assumed by the sovereign government, no banks that are directly or indirectly controlled by the government can conduct due diligence independently on the nature of the sale and report fairly on whether the proceeds of the sale are sufficient to satisfy the debt because the government has given an undertaking to repay the debt or the government may even force banks into a settlement with lesser repayment or even a write­off. Thus, it is citizens who will end up repaying the debts of Air India.

The doc­trine of ‘public trust’:

  • It applies to the management of public sector enterprises by the government. It is the fiduciary duty of the government to act fairly and transparently while dealing with public assets so that the cost of it is not borne by taxpayers.
  • Air India asset sale needs scrutiny in light of the Government’s new National Monetisation Pipeline (NMP), where public assets will be monetised either as leases or outright sales. Air India’s asset sale and retention of liabilities set a dangerous precedent as it could result in the selling of public assets to government faithful and leaving the liabilities to citizens.

National Monetisation Pipeline (NMP):

  • It is a plan to unlock the value of investments in such brownfield public sector assets by tapping institutional and long-term capital. This is a solution to the dual problems of India’s huge investment requirements in the infrastructure sector, and the wastage of public assets lying unutilised or under-utilised. 

Targets of NMP:

  • envisages an aggregate monetisation potential of ₹6-lakh crore through the leasing of core assets of the Central government in sectors such as roads, railways, power, oil and gas pipelines, telecom, civil aviation etc, over a four-year period (FY 2022-25).

Issues with NMP:

  • The problem of ensuring transparency in handing over assets to firms (crony capitalism, nepotism, corruption etc).
  • Taxpayers indirectly subsidise assets which are then used by private players to generate profit for themselves.
  • NMP is quite likely to create a vicious cycle of creating new assets and then monetising the same when they become liabilities for the Government at a later stage.
  • NMP has been criticised by some opposition leaders as ‘back door privatisation’ – giving away public assets cheaply to private players.

Role of States:

  • It is vital to recognise the role of States in establishing a public asset such as Air India, They have actively participated in the growth of the airline in the form of land and other infrastructure to its offices. States were not consulted in the whole process which is a breach of the spirit of ‘cooperative federalism’.
  • States, which are the owners of land and responsible for the maintenance of other infrastructure. Hence, any unilateral sale of assets by the Union without consulting the States would only deepen the mistrust between the Union and the States.

Keynesian economics and the role of the State:

  • India follows a mixed economy model, where the state negotiates a free market capitalist economy with social welfare principles. Keynesian eco­nomics argues that ‘unleashed’ capitalism leads to widening inequality, diminishing social welfare, lowering demand, and thus slower economic progress. The devastating effect of the 1930s Great Depression is a case in hand. Thus, Keynes, while recognising a profit-driven marketplace, advocated social welfare policy interventions such as social uplift, full employment, to ‘leash’ capitalism, and public sector enterprises (with their social obligation) play a constructive role in achieving it.
  • In a mixed economy, private participation is encouraged in areas where the government finds it difficult to perform, without making compromises on the social obligation of the state which is as important as commercial viability. The role Air India played in the repatriation of Indians stranded abroad during the COVID­19 pan­ demic, its evacuation flights during wars and connecting remote areas to the mainland are some examples of social interventions that have to be kept in mind.


  • By divesting the assets of Air India, the Government has stripped the assets and nationalised the debts to be serviced by citizens. If this logic and process are extended to the proposed National Monetisation Pipeline without consulting States, no privatisation exercise by the Union will ever have any legitimacy.

Reaping the demographic dividend


  • The recently released UN report, World Population Prospects 2022, forecasts that the world’s population will touch 8 billion this year while the Indian population will surpass China’s by 2023.

The case of china: comparisons with India:

  • A long­time critic of China’s population policy, Yi Fuxian, believes that without its one-child policy, China’s population too would have naturally risen and peaked in 2040, allowing the world’s second-largest economy to enjoy a much longer “demographic dividend” Instead, China is enduring an ongoing population implosion. 
  • India’s population, by contrast, would have peaked at 1.7 billion, of whom only 330 million will be 60 years or older.
  • So India is getting a demographic dividend that will last nearly 30 years. How it handles this window will determine if it will rise to the top of the economic league table by the end of this century.

Meaning of demographic dividend

  • Demographic dividend refers to the growth and development of an economy due to a large percentage of the country’s population being of working age.
  • A ‘young’ country is set to tap into its demographic dividend if there is a change in its age structure brought on by a decline in fertility and mortality rates. As fewer births are registered, the number of young dependents is smaller compared to the working population. 
  • With fewer people to support and more people in the labor force, an economy’s resources are freed up and invested in other areas to accelerate a country’s economic development.
  • The dividend which is available for a period of time is known as ‘the window of demographic opportunity.
  • However, being a ‘young’ country does not automatically guarantee reaping the benefits of the demographic dividend. The country also has to invest in its Human Resources development- in education, health, skill development etc. Otherwise, due to unemployment, illiteracy, ill health, malnutrition, lack of skills etc, the working-age population of the country can become a burden, instead of an asset. This is the opposite of a demographic dividend, called a Demographic Disaster.

India’s potential workforce: findings of some global reports:

  • Deloitte Insights (2017) expects “India’s potential workforce to rise from 885 million to “1.08 billion people over the next two decades from today”, and that “these new workers will be much better trained and educated,” than their existing counterparts. It contends that “the next 50 years will, therefore, be an Indian summer that redraws the face of global economic power.
  • McKinsey & Company’s report, ‘India at Turning Point’ (August 2020), believes the “trends such as digitisation and automation, shifting supply chains, urbanisation, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety are accelerating” to “create $2.5 trillion of economic value in 2030 and support 112 million jobs, or about 30% of the non-­farm workforce in 2030.”
  • The Economist in its May 2022 issue, says, “As the pandemic recedes, four pillars are clearly visible that will support growth in the next decade;
    • the forging of a single national market 
    • an expansion of industry owing to the renewable energy shift and a move in supply chains away from China 
    • continued pre­eminence in IT
    • a high­tech welfare safety net for the hundreds of millions left behind by all this.”
  • Howeversome other reports are not so enthusiastic about India’s prospects. For instance, Financial Times in an article, ‘Demographics: Indian workers are not ready to seize the baton’, believes that India’s bad infrastructure and poorly skilled workforce will im­pede its growth.

India: an open society:

  • There is so much going on for India today compared to China, the only country it can be reasonably com­pared to. It is still a young country and in a much better position to transform itself compared to China in the 1970s. It is still an open society where mass protest matters and pro­duces results. Our democratic fundamentals are much stronger than our neighbours.
  • The IT technologies now available in India, and most importantly the Internet they run on have matured exponentially. The digital economy of India is accelerating at a greater pace.
  • Thanks to the COVID­19 pandemic, we know these technologies can revolutionise learning and transform Indian society at an astonishingly low cost, un­imaginable through much of China’s economic liberalisation.
  • India also did not impose the equivalent of China’s one-child policy which has seen China suffer the consequences of a prematurely ageing society with a skewed gender ratio.

Conclusion: Tapping the demographic dividend:

  • To get the best out of its demographic dividend, India needs to invest massively in quality schools and higher education as well as health­ care — sectors it has neglected for decades — on an unprecedented scale, till 2050, when its population growth would peak.


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