23rd March

Hive-off at RIL

The article indicates the failure of oil sector reforms as the monopoly of the BIG THREE continues in Indian retail oil sector. RIL move to sell 51% stake to IOC just reinforces the fact.

The decision of RIL to hive-off its fuel retailing business is remarkable given the opaque regime of govt administered fuel prices. Thus it is in best interest for RIL to de-risk its fuel retail segment and at the same time get the benefits that PSU gets from the govt for running the show. Private oil retailers had tough time due to govt policies. They weren’t entitled to oil bonds like the PSU counterparts. As there is more scope for value addition in marketing the petro-products then in crude oil refining. Besides that concentrated refining capacity sans downstream marketing presence is a risky proposition. It is this asset value that RIL intends to unlock and clarifies its intentions not to exit fuel retailing. RIL fuel retail outlets are all on high-density traffic zones and so with built-in locational advantages. Shell was another frontrunner for the stake in RIL but the selection of IOC maintains continued monopolistic regime for most petro-goods.

What is needed is decontrolled prices and better allocation of resources instead of open ended subsidies on oil products.

Help regional airlines

The article strongly advocates the need for support to the regional airlines in order to improve the overall aviation infrastructure in the country. 

In spite of difficult times it is a positive sign that over dozen regional airlines want to start operations. These airlines have done well in the peninsular India but not in the Far East or the hinterland. Main constraint for them is the route dispersal norms which compels every airline in India to have routes to such regions. This is becomes a loss making proposition since major airlines use big jumbo jets in such regions from where they do not get much traffic. Small jets and turbo-props are better for such regions. Gradual withdrawal of route dispersal policy would help the regional airlines as it has helped them in US. Another issue for regional airlines is inadequate yet expensive infrastructure in the metros. Due to high turnaround times, it increases costs and reduces operational efficiency, something which is key to these airlines. Secondary airports in these cities should be built and these airlines can operate from there.

With 450 unused airstrips across the nation, there is a huge scope of spreading aviation to places where it not there presently. Govt can also considering increasing the FDI limit of 49% and help foreign airlines as well to cater to the huge market for regional airlines.