India

India's Aviation Czar Pitches the Voters


How does a politician who piloted India's moribund airline industry into its biggest ever expansion make his pitch for re-election when 99% of his voters have never been inside a plane?

"Very carefully," says Praful Patel, who has served as India's Aviation Minister for the past four years. On Patel's watch, new airlines have blossomed, decrepit airports have been rejuvenated, passenger traffic has tripled, and weaker carriers have been gobbled up by nimbler competitors in the natural order of a capitalist marketplace.

But in campaigning as an ally to the ruling Congress Party for a seat in India's Parliament over the past two months, Patel has barely mentioned his record as minister. (India conducts staggered elections, with voting in some states taking place last month and others taking place now; the campaign ends this week.) Instead, as he crisscrossed the hot and dusty plains of his constituency a few hours drive from the city of Nagpur, at the geographic center of India, his speeches covered reliable electricity, better roads, subsidies for farmers, and other issues important to rural voters. "I don't even talk of aviation, because it is not something that people relate to easily," he says in a phone interview from Dubai, where he's relaxing after the campaign. "I don't think that is what will get us elected."

Market-minded politicians everywhere must offset their reforms with populist rhetoric to get elected. But in India, this "high-wire act," as Patel describes it, is harder than just about any place else. That's because India's shift from a quasi-socialist economy into one that welcomes foreign investment and nurtures domestic entrepreneurs has been slow, and the hold that the communist parties and unions have on the national debate is still far too strong to ignore. "The left parties have a point of view that doesn't necessarily match what we consider as a free-markets approach," says Patel, who himself clashed with airport unions more than once in his tenure. "But that doesn't mean that if we decide on a certain path we can't do it. We just have to commit to it a lot harder."

Poverty Endures

Worse, the meager benefits of reforms have been limited mostly to urban areas. While a middle class has emerged in India's cities, that middle class often doesn't bother to vote. These people are far outnumbered by the poor masses living in the harsh Indian countryside, where the promised trickle-down of prosperity has been more of a hesitant drip. In the 20 years since reforms began, India's economy has more than doubled, but the poor's lot has remained largely unchanged. The number of children under 5 who are malnourished has dropped by just one point in the past 10 years, to 46%, and while per capita income—an inexact measure in a country with so many poor and so few rich—has doubled to about $800 a year, inflation has eaten away even that gain. In spite of India's much vaunted IT revolution, the sector employs no more than 10 million people. India's biggest employer is still the textile industry, in which workers (often women and children) toil away in sweatshops that produce clothes and shoes for the West.

This could spell trouble for whichever party prevails in the current elections. For the past month, 712 million Indians have had a chance to have their say in five regional rounds of voting, with results due on May 16. Although India has many well-intentioned, reform-minded civil servants and parliamentarians, it's getting harder to convince voters that free markets can help improve their lives. And while India has made tremendous strides in opening its economy over the past two decades, what remains to be done will be a much harder sell.

The biggest hurdle is labor regulations, something unions and left-leaning parties are loath to change. Current rules require companies with more than 100 employees to seek government approval to fire or lay off anyone, scaring off investment. Until such laws are modernized, India will never see Chinese-style growth, says Subir Gokarn, chief Asia-Pacific economist for ratings agency Standard & Poor's (MHP). With easier reforms done in IT, telecom, and airlines, the "remaining long-term bottlenecks are far more difficult to deal with," Gokarn says.

Plenty of Work

It may fall to the 52-year-old Patel to try to break through some of those bottlenecks. He's urbane, well traveled, wears carefully tailored white cotton kurtas (long, flowing open-necked shirts), and is a formidable presence on television news shows. With a declared net worth of $7.5 million, he entered national politics in 1991 after working in his family's business, which has interests stretching from tobacco to real estate to finance. If Patel wins his seat and his Congress Party forms a government, he will probably be tapped to oversee other sectors begging for reform: power, highways, shipping, or ports. There's no shortage of work to be done, Patel says. Ports need to be privatized, private-sector power projects need to be approved, and contracts for highway construction need to be negotiated and handed out. "India needs a big-time push in infrastructure," he says. "There is a need for reform in labor. We really need to keep the momentum."

Patel is painfully aware of the challenges he faces in getting elected. In 1999 and in 2004, he was defeated for election to the Lok Sabha, the more powerful of the two houses of Parliament, by candidates who focused on local development issues and caste-based politics. Both times, Patel later ran for and won a seat in the upper house, which has less competitive elections. (The upper house doesn't actually have a say in issues such as the formation of the government, so its members are not well positioned to get top-level cabinet positions like defense or finance.)

It's a fate he shares with another reformer, Prime Minister Manmohan Singh, who as Finance Minister in 1991 opened India to foreign investment for the first time. Singh has never won a Lok Sabha election and isn't contesting one this time around.

The changes Patel brought to India's aviation industry were unprecedented. He approved the launch of new airlines such as Kingfisher (KING.BO), bankrolled by billions of dollars from liquor magnate Vijay Mallya. He publicly praised low-cost carriers such as IndiGo, run by former US Airways (LCC) executives Rakesh Gangwal and Bruce Ashby, which forced ticket prices down dramatically. He privatized decaying airports in Mumbai and Delhi. He ended the monopoly that state-run Air India had over the lucrative high-volume routes to the Gulf.

"The One Who Did Stuff"

Patel's work has won him admirers from people in the industry. "His performance as a minister was one of the most spectacular, I would say, in the history of India," says Dinesh Keskar, the India head for Boeing (BA), which has sold 164 jets in India since 2004, with a list price of about $25 billion. "I felt that he [was able to] do pretty much what he had on his agenda. He was the one who did stuff."

But it always seemed to be two steps forward, one step back. Although he managed to allow foreign investment in local airlines, it was limited to cargo carriers, and only up to 74%. New airlines looking to fly the Mumbai-Delhi route, which makes up 52% of all air traffic in India, were told they must also serve remote locations in the impoverished Northeast, an act that spurred investment in those regions but initially weighed down airlines until the routes matured. When private carrier Jet Airways (JET.BO) posted losses because of an ambitious international expansion, an ill-timed acquisition, and rising oil prices, he railed against planned layoffs of hundreds of employees, effectively forcing Jet to rehire them. "[Jet] could have done the layoffs in the right way, intelligently," he says, denying that he pressured the airline to retain staff. "I didn't approve of the way they did it, overnight. They could have done it intelligently, slowly building a case." And he still had to prop up the fading Air India, placing an order for 111 new jets and granting the state-owned company an extra $400 million in capital infusion (which it may recoup if the government manages to take Air India public).

Patel is philosophical about the apparent disconnect between his support for the state carrier and his reforms. By recognizing the public sector must "act as an anchor but not be the driver," he says, "we also allowed the private sector to compete. India is a huge country, and there's no way the private sector could have met its aviation needs right away."

Srivastava reports for BusinessWeek from New Delhi.

Srivastava is a reporter-at-large for Bloomberg News in London. He also reports for Bloomberg Businessweek.

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