NEW DELHI: Doing business in India is not without serious troubles. There can be many risks.
Businesses attracted by relatively cheap labour discover that infrastructure costs can be astronomical; navigating through complex government policies and procedures can be frustrating; enforcing contracts is bothersome; and once you have fulfilled the requirements, the goalposts may change.
India’s market size is big and major players in any sector cannot resist the temptation of setting up a presence in India.
For large enterprises it’s easier than small or medium-size businesses to operate in the difficult terrain. But that is not always the case as becomes clear from the Indian police’s investigation against AirAsia Group Chief Executive Officer Tan Sri Tony Fernandes and a few other people over their alleged violation of rules in setting up AirAsia India Ltd (AAIL).
The venture involves Asia’s biggest budget airline and Tata Sons, India’s largest conglomerate.
AirAsia Bhd owns 49 per cent, the maximum a foreign entity is allowed under Indian aviation laws, of AirAsia India, while another 49 per cent is owned by Tata and the remainder is held by two Indian shareholders.
India’s Central Bureau of Investigation (CBI) on May 28 registered a case alleging that Fernandes and other individuals broke rules in getting various permits for setting up and running the airline.
Some of the charges reflect the allegations made by the Federation of Indian Airlines (FIA), representing local carriers IndiGo, Jet Airways, SpiceJet and GoAir, which opposed AirAsia India’s entry into the Indian market.
Hindu nationalist Bharatiya Janata Party (BJP) leader Subramanian Swamy has been a prominent detractor of AirAsia’s India venture. He calls it an “illegal” airline and praises the Indian investigative agencies for doing “good work” in the case.
The Indian regulators, foremost being the Foreign Investment Promotion Board, Directorate General of Civil Aviation, and the Ministry of Civil Aviation, found everything in order to allow commercial operations by the airline in mid-2014.
The airline has achieved significant growth in four years. With a fleet size of 18 A320 aircraft and a network of 19 destinations served from its hubs in Bengaluru, New Delhi and Kolkata, it is a well-established market player.
AirAsia India also plans to launch an initial public offering (IPO) of shares and start foreign flights when its fleet expands to a minimum 20 aircraft in the domestic market.
According to one allegation in the CBI report, there were unfair lobbying efforts to get rid of India’s so-called “5/20” rule to enable AirAsia India to start early international operations.
The rule stipulated that an India-based carrier must complete five years of continuous operations and deploy 20 planes in the home market before flying abroad.
It is well-known that the rule hobbled the sector and the government changed it and several other laws in 2016 to make India more attractive to aviation investors.
Under the changed rules, an airline is no longer required to have five years of local operations, but it must still have at least 20 aircraft serving the Indian market.
As a legitimate stakeholder in India’s airline sector, AirAsia and its officials can surely have their own views about laws governing the industry. It is up to them how they express these views, whether in industry conferences or in meetings with government officials.
If there are charges of not adhering to Indian laws, these must be clearly established.
AirAsia has rejected the allegations and suggestions of wrongdoing.
“AirAsia vigorously denies all accusations and contentions, and believe that these trumped up accusations are baseless and motivated by considerations that as yet remain unknown,” the company told Bursa Malaysia.
“Legal action to protect AirAsia and its interests against these allegations will be taken against any person who is known to have maliciously and frivolously instigated, and or smeared the good reputation of individuals and shareholders of AAIL,” it said.
AirAsia is an undisputed global brand and so is India’s Tata Group. Surely, they did not launch the airline as a fly-by-night operation.
The change in the “5/20” rule and other reforms have been celebrated at the highest level of the Indian government to showcase the country as an investment destination.
The reform momentum may have been hit due to the exit of former aviation minister Pusapati Ashok Gajapathi Raju, who quit after his regional Telugu Desam Party withdrew from the BJP-led federal government in March.
The “5/20” reform benefits not just AirAsia India but also Singapore Airlines (SIA) venture Vistara.
Vistara, a full-service carrier, came into being in 2013 as a result of India’s aviation reforms.
Tata Group owns 51 per cent of Vistara and 49 per cent is controlled by Singapore.
The launch of these two airlines with Southeast Asian money and expertise has helped India to remove some of the stain put on its airline sector by the failed Kingfisher Airlines of liquor baron Vijay Mallya, whose has fled India after massive bank loan defaults.
Despite India’s high passenger growth potential, financially all is not well with most of its airlines.
And the sector is still not attractive enough for foreign funds and airline companies.
Not a single expression of interest from investors for a stake in national carrier Air India was received by the May 31 deadline. The Indian government has proposed to sell 76 per cent of the state-owned airline, which is surviving on a 10-year bailout package unveiled in 2012.
A senior government official believes the CBI’s AirAsia case would not affect the Air India disinvestment process.
“These individual events, I don’t think, will have an impact (on Air India disinvestment),” Civil Aviation Secretary Rajiv Nayan Choubey told Indian media.
Not everyone can be so confident, however. Potential investors will be watching how AirAsia is treated in India.