Privatization of Air India

Research Objectives
The study intends to analyze the efficiency gains resulting from
privatization and how such gains can affect the airlines financial
situation.
Specifically, the study will:
Review the trends of Air Indias debt as a public enterprise and
hence the governments 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

Hypothesis
H0: 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 airline
H1: Privatization will not have any effect on the efficiency of the
airline or the financial situation

Literature Review
The 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.