December 11, 2003 ☼ Economy

The Indian government finally liberalised (albeit partially) the international aviation sector. This means that private airlines can operate out of the four old metros to SAARC and ASEAN countries. Foreign investors can pick up up to 49 percent equity in private airlines.

The move is welcome. But I see the reforms in various sectors being pursued on an ad hoc basis rather than a part of some intelligent design. For example, Bangalore and Hyderabad are seeing IT driven growth and are the final destinations of several business travellers. Yet, private airlines cannot fly to international routes directly out of these cities.

Also the airline industry in Asia is in a state of transformation due to the entry of the low-cost carriers like Air Asia. This means India’s private airlines must compete in a market where there are both low-cost and differentiated (high-value) competitors. While I have no doubt that India will be able to produce a winner eventually, they are entering the international markets under much tougher conditions.

In contrast, every airport in China is allowed to operate international flights. The decision on which airports to use is left to the airlines. By protecting two underperforming public-sector units India is holding much of its economy to ransom.

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