When the government was clearing a R30,000 crore bailout package for Air India, this was largely criticised on grounds that it was throwing good money after bad since turning around Air India wasn’t going to be easy. The larger problem which few spoke of was the effect on the level-playing field. After all, Air India was competing with private players, none of whom had the luxury of a taxpayer-funded bailout. Finance minister P Chidambaram’s recent remarks to the Competition Commission of India (CCI) are significant because he signalled a complete reversal in the view on bailing out PSUs. Perhaps the most important reason to bring PSUs under scrutiny for anti-competitive practices, the finance minister said, is that “the private sector has to compete with the public sector”.
After talking of how favouring PSUs by the government can be anti-competitive and create an un-level playing field, the finance minister moved on to government bailouts for “public sector entities that cannot compete, and have been kept alive through regular contributions from the exchequer? Are such regular infusions distorting the competitive arena?” The finance minister also raised other important issues when he said government procurement could be seen as anti-competitive because it crowds out the private sector. While Chidambaram’s concerns about public procurement are best seen in the context of enhanced procurement for the Food Security Bill, his apprehensions about the distortionary effects of government bailouts will be put to test when the Group of Ministers that he heads deliberates over a R25,000-30,000 crore rescue package for ailing PSU telcos MTNL and BSNL. Given their falling market shares, keeping neither Air India nor BSNL/MTNL alive is important from the point of view of consumer welfare.