I did something last month that I had not done for several decades—I flew on Air India. The national carrier, which had been the punchline of countless jokes, showed itself to be exactly the opposite of what so many passengers have come to expect in recent years. The domestic flight took off several minutes ahead of schedule and the ground and cabin crews exuded the quiet confidence evident in more established global carriers. It wasn’t so much surprising as it was shocking.
In many ways, Air India’s revival can be viewed as a metaphor for the nation’s wider economy, which, depending on which expert you rely on, is either on the cusp of a major revival, "India’s decade” as investment bank Morgan Stanley proclaimed recently, or the country’s growth will fall short in helping lower-income citizens, as Raghuram Rajan, the economist and former central bank governor, recently noted in an article.
Looking at Air India first, the carrier now owned by India’s $128 billion Tata Group, had been suffocating under state control for close to seven decades when the Modi government finally decided to return it to its original owners. Burdened with bureaucratic inertia and spiraling debt, Air India had become a poster child for everything that was wrong with state-owned enterprises.
But now under its new ownership and management that includes the 26-year airline veteran Campbell Wilson as CEO and managing director, there are high expectations that Air India will regain its past glory and market share. For the international travel market, Air India will be going up against the Gulf carriers like Emirates and Qatar, which have come to dominate the business of ferrying tens of millions of Indian passengers and the diaspora to and from the country.
The skeptics will say the carrier’s turnaround is still a work in progress, especially after it mishandled a shocking incident when an inebriated finance executive urinated on another passenger on board a flight from New York to New Delhi in November. Tata Group Chairman N. Chandrasekaran described the incident as a matter of “personal anguish” and pledged to “review and repair” flight management processes. The incident, which sparked a public backlash and damaged Air India’s reputation, occurred at a time when the airline was on a roll, preparing to place a massive order for 500 Boeing and Airbus aircraft. If the deal indeed materializes, it may well be the single largest order for commercial aircraft, according to industry reports.
Air India’s promise and recent travails mirror the high (and low) expectations for the Indian economy this year, as it fully emerges from the pandemic. With the IMF projecting 2023 GDP growth at 6.1%, significantly higher than China’s 4.4%, boosters have declared that the growth momentum is unstoppable. The financial sector’s bad loan problems have largely been cleaned up and the country is hoping to see an upsurge in manufacturing investment as foreign investors increasingly target India and Vietnam to reduce their China risks.
However, analysts have cautioned that a more difficult external environment and high oil prices present a mixed picture. The trade deficit for 2022 alone is estimated at $190 billion. India is also heading to national elections in 2024 and the government will be tempted to step on the fiscal spending pedal during the upcoming annual budget on February 1.
“What should the Modi government do?” asked The Indian Express in an editorial early in the new year. “It should certainly refrain from any fiscal stimulus to kick-start investment or drive growth. Far from stimulus, what the country needs is macroeconomic stability and policy certainty.”
With the political imperative to secure a record third term in office, Prime Minister Modi will no doubt disregard such advice. In many ways, the Indian economy and Air India enter the new year as hostages to the external environment. More buoyant conditions will see an explosion in Indians traveling overseas, with Air India expecting to gain market share and financial clout. An Indian economy expanding at 7% or even 8% is exactly what the airline and the country needs. The delivery of this promise, however, will depend on outside factors, such as resolving the conflict in faraway Ukraine, as well as India's own ability to accelerate growth without sacrificing fiscal prudence.