Crony Capitalism at its worst!

Policy decisions are a means to achieve radical changes in the functioning of a ministry by laying down the framework for decision making. And the current Congress-led dispensations approach of using e-GOM's (Empowered-Group of Ministers) led by a seasoned politician like Pranab Mukherjee, who is dyed in the wool of Congress politics, is also perhaps a step in the right direction, ensuring that decisions arrived at are taken with greater consultation with the core group: institutionalising the peer-group review process with respect to vital policy decisions critical to the further growth of sectors in our economy.

However as recent incidents have shown, some of our ministers have shown that they can bend even this system to suit their needs. Since this is a blog dedicated to aviation, I will desist from speaking about the Coal, Small Industries and other ministries and restrict myself to speaking about the Minister for Civil Aviation who has truly turned manipulation of policy into a fine art!

Indian aviation is undoubtedly going through a boom and changes to archaic policies are vital if the sector has to continue growing at the rate it has been. And without doubt, Praful Patel has been one of the more pro-active with regards to changing policy. However, it is clear to anyone who observes the industry closely that these policy changes are not being taken based on what the Industry needs but based on what his friends need.

And have no doubt: Praful Patel has many friends in the industry: Friends who lobbied to ensure that this former beedi smuggler, bootlegger and financial scamster turned politician from the NCP, made it to the ministry of Civil Aviation. ANd just who are these friends? And what are these policy decisions that serve to raise suspicion?

1. Dinesh Keskar (DK) - Sr Vice President, Sales-Commercial for Boeing. Originally from Amravati and family friend of the patels with deep connections to Vidarbha where Patel's family also has business interests.

2. Vijay Mallya (VJM) - CEO KingFisher Airlines and UB Group. Family Friend and regular with Praful Patel on the Page 3 circuit. And soon to be relatives courtesy an engagement of Mallyas son with Patels daughter.

3. Naresh Goyal (NG) - Main shareholder Jet Airways. Family friends for years but have now had a falling out over Praful Patels relations with VJM.

These are just three of Praful Patels many friends. 3 who merit attention at this point because of the link between that friendship and the policy decisions being taken by his ministry.

Some policy decisions that have been affected by these relationships:

Case 1. The 35000 crore deal for 68 Boeings signed by Air India - This has been a long pending deal. The national carrier had originally opted to purchase the competing Airbus A340-300E version for their long haul requirement and 18 737-800's for their regional requirement: a selection which the management REAFFIRMED on multiple occassions during the tenure of the previous govt. The decision made sound sense: both the A340-300E and the 737-800 would be powered by the CFM56 engines with the same cores: resulting in engg savings.Being 4 engined, the A340's would not be restricted on routes or subject to ETOPS restrictions like the twin-engined Boeing 777 or 787 being offered by rival Boeing. The other state carrier Indian Airlines (IC) opted to add 43 more Airbus A32X's: a fleet type that they have been operating for over 2 decades now.

Within a month of taking over, Praful Patel, the new minister of Civil Aviation (MoCA) asks both carriers to scrap their previous choices, "relook at their fleet needs" and negotiate the deals afresh. No reason was given for the decision.

http://inhome.rediff.com/money/2004/jun/01air.htm

No reason has ever been offered by the minister on why he ordered the "relook". But almost overnight, the AI board was armtwisted into switching their original order for A340's into an order for Boeing 777's and 787's, including the 300ER version which werent even on the table earlier! The beneficiary: Boeing and Patels good pal: Dinesh Keskar.

The other carrier IC was more succesful in resisting ministerial armtwisting and quickly reaffirmed their original choice for the Airbus. Needless to say the minister has not been very happy with the IC managements "independent" streak and has been busy clipping their wings as we speak (separate post on that coming up).

Case 2: Permissions to fly abroad: As of now there exists a rule (admittedly archaic) which requires a domestic carrier to operate domestic routes for a minimum period of 5 years before it can be allowed to begin operations on international routes. Private carriers like Jet and the former Sahara slogged it out on domestic routes (with their attendant lower yields) for five long years before they finally started international operations to LHR, SIN, KTM and KUL.

There was no talk of changing policy when carriers like Deccan, Spice and Indigo asked for a change in this rule and they were even publicly snubbed by the same minister! Things changed dramatically however once the airline owned by Patel's Page-3 crony Vijay Mallya ordered some shiny new Airbus A340's to go international. From that day in Farnborough, our minister has changed his tune and is now singing a tune that carriers should not have to wait for 5 years to fly international and that this permission can be granted on a "conditional basis" based on the ministers discretion! Note that the minister is not talking of opening up the international sector completely: just selectively for his pals on a "conditional basis"!! Which means that Paramount, Indigo, and Spice will still have to slug it out or alternately (judging by how our MoCA works) by sucking up to the minister. And the urgency of the ministers calls for urging a change in this policy is becoming more and more shrill as the date for the delivery of Mallya's first A330/A340 draws nearer! Infact this has been put on the top of the agenda for discussion before the e-GOM!

Case 3: Patel has also called for a review of the policy that prohibits the serving and consumption of alcoholic beverages onboard domestic flights. Again its a no-brainer who the biggest beneficiary of this change in policy would be. Being one of the largest manufacturers of alcoholic beverages in the world, the UB group which also owns KingFisher Airlines (infact KF operates on UB-Airs AOC), is the best placed to cross-leverage their position to maximum advantage. Given Patels history of decision making based on what his pals want, this also comes up for questioning.

Then there are other issues like partiality with regards to allocation of parking space etc where existing (and larger) players like Deccan are denied parking space but KF manages to get parking space without any problems! Things like these happen because there is no mechanism to ensure that all players in the market compete on a level playing field. We have an independent regulatory authority like TRAI in telecom. we dont have that in Aviation where decisions still go through the MoCA and his whims and fancies play the biggest role in determining whether you survive or not!

I dont question the need for changes in policy. Most certainly there are archaic rules in our aviation rule book that need to be tweaked in the evolving scenario. However policy decisions should be made based on what the industry requires and not what a certain Page-3 crony or family friend may want. And in this regard, Praful Patel has certainly been guilty of practising crony capitalism of the worst kind. As a NCP man, Patel has a history of fighting the BJP and its politics. But what Patel himself is doing is similar to what a certain Pramod "2 percent" Mahajan was guilty of when that character was minister for Telecommunications. Mr.2 percent's policy decisions as telecom minister with respect to circle allocations etc served to setback the Indian Telecom industry by atleast 6 years. Praful Patels actions as MoCA fall into the same category.

CRONY CAPITALISM DOESNT DO THE INDUSTRY ANY GOOD AND CAUSES LASTING DAMAGE.

As a party, the NCP, to which Mr.patel is affiliated, has always been confused with regards to its political space. Though it tries to claim the centrist space of the Congress, its actions put it smack with the right-wing BJP which it claims to oppose. They are in a coalition and there are certain limits of the coalition govts. However should the Congress allow the image of its govt to be tarnished because of the activities of its constituent members from other parties? I think it is time the govt threw down the gauntlet and made it very clear to its alliance partners as to how far they can go....! This applies as much to the Civil Aviation as it does to other ministries like Coal, Food & Civil Supplies and Steel, where a similar dynamic exists.

I intend to write to the members of the e-GOM, Manmohan Singh and Sonia Gandhi about this issue and would urge all of those reading this blog to do the same.