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Privatization

of Air India

Research Objectives
The study intends to analyze the efficiency gains resulting from privatization and
how such gains can affect the airlines financial situation.
Specifically, the study will:
Review the trends of Air Indias debt as a public enterprise and hence the
governments debt as a result of subsidizing the airline
Assess the current performance of the airline in terms of profitability,
capital investment, leverage and efficiency in resource utilization
Assess the fiscal effect

Hypothesis

H0: Privatization would have a positive effect on the efficiency of the airline,
leading to improved performance, reduction in government subsidies, and a
better financial position for the airline
H1: Privatization will not have any effect on the efficiency of the airline or the
financial situation

Literature Review
The often-stated objectives of privatization run in general terms, such as
developing the private sector, broadening ownership, reducing the fiscal burden,
increasing economic efficiency, reducing the administrative burden, developing
capital markets, assessing capital and technological markets and raising revenue
for the government (Oliver and Bhatia, 1998).
Concerning the performance improvement brought by privatization, the
evidence is contradictory. According to the studies by Adams (1992), and
Megyery and Sader (1997), there was no significant difference in performance
between privatized and non-privatized firms. However, other studies (Oliver and
Bhatia, 1998) found a general performance improvement post privatization.
Some even argue that efficiency improvement can be misleading. The answer lies
not in economic efficiency but in politics and the politically accommodating
behavior of governments. According to Parker (1993), there is no overwhelming
support for the notion that private enterprise is inevitably superior to public
enterprise. Many a times performance improvements can be attributed to the
restructuring within the organization.
The general conclusion drawn from the available literature is mixed. Through
one may argue for improved performance as firms change ownerships, the
question that begs evidence is whether improvement is due to the change of
ownership or the nature of the new ownership i.e., private.

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