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Don't bail Kingfisher out

Kingfisher Airlines has reportedly approached the Central government for a financial bailout package to help it tide over a massive multi-thousand crore debt. If the government does indeed bail it out, it will be an extremely shortsighted decision, and on that will set a terrible precedent for others to follow.

There is no market logic to bailing out a private company (or, for that matter, even a government firm) using the taxpayers' money. Kingfisher is under heavy debt seemingly because of inefficiency in management practices, its inability to control costs and its faster-than-it-could-manage expansion. It was not helped by fluctuating fuel costs and the archaic laws that govern the Indian civil aviation sector, which has burdened both the civil aviation companies as well as the hapless passenger who seems to be shelling out a large amount for the ticket only because the taxation is so high.

But then, this is the case with most sectors in India, be it manufacturing or services. If the government makes an exception for Kingfisher Airlines, it would be morally bound to bail out companies from other sectors, too. The idea of privatising civil aviation was to bring in private players whose operations and profitability would be governed by market forces, just as any company from any other sector of the economy.

A similar case can be built for Air India, the government-run airline that was, at one point in time, rated one of the finest airlines in the world. One argument in favour of bailing out the airline could be that if Kingfisher is allowed to go under, it will take down several financial institutions, service providers, oil companies with it given that it owes thousands of crores to these firms. But the counter argument is this: Kingfisher's financial state was known to everyone. It should not have got bank loans or fuel on credit to such an extent. This fiscal indiscipline cannot go unpunished.

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