| THURSDAY, 3 DECEMBER 2020 TAKE TWO 7 . <

by May this year, leave alone flying abroad last September, which has LOSS HORIZONS   been stalled by a government inves- AirAsia India Vistara (Figures in ~ cr) tigation into alleged irregularities in FY17 FY18 FY19 FY20 extends the permit process. In the international market again, the LCC pie is getting larger, espe- -124 cially on short-haul flights. For -140 -317

instance, in the March quarter of this -431 year, LCCs accounted for nearly half -518 its wingspan the customers who flew internation- -670 ally in any of the top ten (in -831 terms of market share) to and from -1,814 BRIEFCASE India. Last year, during the same DOMESTIC MARKET SHARE (%) The plan to take ownership of period the LCC share was just over M J ANTONY  7.2 36 per cent. Jan-Mar AirAsia India 7.1 A selection of key court orders AirAsia would give it a presence But despite the market potential, ’20  Oct ’20 Vistara 6.4 in both the full-service and AirAsia has struggled. Frequent strat- 6.4 egy flip-flops, changes in top man- Source: DGCA SC: Follow norms before blacklisting low-cost carrier markets agement, alleged violations of Indian Government companies hold most of the laws (it is being probed by the Central contracts and they are also the ones that Bureau of Investigations) and lack of though they also own JLR. So it was have a tendency to blacklist firms liberally. clarity on who really is piloting the very clear that they were keen to run a This is disastrous for the contractors. They (the Tatas started with only 30 budget airlines and straddle the entire also suffer a domino effect when other per cent and AirAsia Berhad’s pro- aviation space even though they have public sector units and even private moter Tony Fernandes was to run the a full-service carrier.” employers keep them away. The Supreme show) have all taken a toll. The com- But how does AirAsia India fit in Court (SC) recently criticised Food pany has never been even close to with the Tata’s overall aviation ambi- Corporation of India for blacklisting a firm breakeven with its losses going up tion — which, apart from the two car- without following set procedures. It was from ~182 crore in FY16 to riers, may include bid- given a contract for recruiting employees for ~670 crore in FY19. FY20 At least one thing ding for state-owned Air the corporation. The agency conducted a saw some improvement, going for the Tata India? Mumbai-based written test. The question papers reportedly with losses pared to group’s quest for a aviation consultancy leaked and the Bhopal police arrested some ~317 crore. bigger stake in an firm Martin Consulting 50 persons. FCI issued show cause notice to But it is now pretty LCC is that this market said based on order which the firm replied that the “leaked” clear that the Tatas have accounts for 84 per books and plans of the questions were not the ones set by it. decided to occupy the cent of the domestic three airlines for the However, FCI abruptly terminated the pilot’s seat at the airline. passenger market, next few years (assum- contract and blacklisted it for five years. It The process started in and it is growing ing there is no change), resulted in five other government units October-end 2018 when an the Tata group will end blacklisting the firm and withholding dues. old Tata hand, Sunil Bhaskaran, was up commanding an aviation group The Madhya Pradesh high court dismissed SURAJEET DAS GUPTA wingspan across the aviation market the LCC space have eroded their mar- appointed as MD and CEO after the with a fleet of 800-900 aircraft (rough- it writ petition. The SC allowed its appeal New , 2 December — from full-service carrier Vistara, its ket shares — SpiceJet (with its fuel effi- top spot was vacant for months. This ly the same as Delta Airlines) with (UMC Technologies Ltd vs FCI), stating that joint venture (Tatas own 51 per cent cient 787 fleet still grounded for rea- was followed by Fernandes quitting conservative revenues of $7-8 billion- the show cause did not propose blacklisting, his week, news was out that the share) with , to the sons beyond its control) and GoAir. the board. In early 2019, the group took plus annually. which was an essential condition before Tata group plans to raise its low-cost carrier (LCC) AirAsia India. Taken together, their market share has a more decisive step towards owner- “The Tatas could easily become a blacklisting. As a state entity, FCI has a T stake in AirAsia India from 51 to Both carriers are still loss-makers with dropped from 26 per cent in the ship and control by raising its stake to global aviation force to reckon with, greater duty to follow procedures. 76 per cent and prepare the ground for modest market shares, so is the group January-March quarter to 21 per cent 51 per cent. And now discussions are they only have to offer clearly differ- an exit route to its Malaysian partner, spreading itself too thin in a challeng- in October. The overwhelming gainer on for AirAsia Berhad’s formal exit. entiated products and cater to differ- Permanent ban is illegal AirAsia Berhad. The group has also ing business? has been IndiGo, which dominates the For the Tatas, building a budget ent segments of the market. This will In another case of blacklisting, a veterinary invested over ~650 crore in the airline At least one thing going for the Tata market with over 55 per cent. brand in services or products is not also help expand the overall Indian drug manufacturer wrongly labelled a through optionally convertible deben- group’s quest for a bigger stake in an But AirAsia’s market share has new. As a top former executive of market — both domestic and interna- product by an inadvertent error, which was tures, which can be converted into LCC is that this market accounts for been stagnant at over 7 per cent and AirAsia India pointed out: “It’s in the tional,” said Mark Martin, founder of not serious. The UP Animal Husbandry equity. And it is looking for a name for 84 per cent of the domestic passenger that is because it has one of the small- Tata DNA. They built to Martin Consulting. Department blacklisted the firm the airline (expected to have the Tata market, and it is growing. This is also est fleets (32 aircraft) among its LCCs address the affordable hotel segment But ambition in the aviation busi- indefinitely. The firm moved the high court tag) once the brand licensing agree- an opportune time to push the joystick competitors — GoAir has 57 aircraft even though they had super luxury ness tends to be overtaken by hard and lost. In appeal, it argued before the SC ment ends in March next year. since some of the rivals have hit air and Spicejet 104. The airline was hotels. They did so too in the passenger realities. The Tata group’s aviation that the Rajasthan government did not give For the Tatas, this will mean a wide pockets. Two of the three players in nowhere near its plan to hit 40 planes car segment — with the Nano even plans will be put to its sternest test yet. it supply contract because of the permanent blacklisting. The SC allowed its appeal (Vetindia Pharma vs UP) stating that blacklisting should not last more than three years; otherwise it would be death knell for the company. ‘Mineral mining in

Row over challenge to foreign award In the continuing controversy over need of FDI, modern enforcement of foreign awards in this country, the SC last week set aside the Bombay High Court judgment which had held that a challenge to a foreign award is technology’ maintainable here. In this case, disputes arose over the termination of a contract for a Lack of foreign investment and application of modern exploration technologies polymers plant in the mining sector have made the country a big net importer of minerals, between an Italian R K SHARMA, director general of Federation of Indian Mineral Industries, In the continuing firm, NOY Vallesina tells Kunal Bose. Edited excerpts: controversy over and Jindal Drugs Ltd. enforcement of The ICC arbitral Why is the performance of India’s ing necessary changes in Mines & foreign awards in tribunal in Paris held mining industry not in sync with Minerals (Development & Regul- this country, the in favour of the the resources lying underground? ation) Act, 1957. Once the requisite SC last week set foreign firm. When We are aware that geologically India changes are made, there has to be aside the Bombay Jindal challenged it in has almost an identical prospectiv- policy stability. High Court the Bombay High ity as the world’s mineral rich coun- judgment which Court, a single judge tries such as Australia, Brazil and What is the size of geological had held that ruled the petition was South Africa. But the contribution under-exploration in India? a challenge to not maintainable of the mineral industry to our GDP The obvious geological potential a foreign award under the Arbitration in 2018-19 was a disappointing 1.75 (OGP) area of 0.571 million sq km is is maintainable Act. On appeal, the per cent compared with 7.5 per cent 17.4 per cent of the country’s total here division bench held for South Africa and 6.99 per cent landmass. Lack of investment and otherwise, leading to for Australia. appropriate technology have restri- the appeal, which was allowed by the SC. This is because we have so far cted exploration and actual mining exercised the soft option of extract- to around 10 per cent and 1.5 per Financial creditor gets suit shifted ing surficially available bulk min- cent of OGP area, respectively. The The SC has ruled that a financial creditor erals such as coal, iron ore, bauxite base paper on national mineral can seek the transfer of winding up and limestone. No wonder during exploration policy, 2015 has identi- proceedings before a company court to 2018-19, against our production of fied OGP areas mineral-wise. the National Company Law Tribunal ~244,216 crore worth of major and According to it, we have 300,000 (NCLT). The object of the Insolvency and minor minerals, minerals and met- sq km under diamond and other Bankruptcy Code (IBC) is to resolve issues als imports cost us precious stones, 181,150 speedily. By allowing parallel ~910,840 crore. The big sq km under base met- proceedings in the high court and the trade deficit on this als and 102,890 sq km NCLT, “the entire object of IBC will be account is due to our under gold. However, thrown to the winds”. The SC stated so importing high-value due to lack of explo- while allowing an appeal against the gold, diamond, plat- ration leading to poor decision of the Allahabad High Court in inum, nickel, cobalt, R K SHARMA extraction, all three con- the case, Kaledonia Jute vs Axis Nirman rare earths, etcetera. Director General, tinue to figure promi- Industries. In this case, the high court had These are the difficult- Federation of Indian nently in our import bill. Mineral Industries already passed a winding up order and to-find minerals and the official liquidator was in charge of the call for high-end exploration and But why, in spite of our excellent failed company. Then another creditor prospecting technologies. resources, has FDI remained shy? approached NCLT seeking its dues and Mining, a long gestation business, approached the high court for transfer of So, despite the potential, India has takes time to generate returns. the case to the tribunal. The high court remained highly underexplored? Foreign groups will come in only in rejected its plea. The creditor appealed to Our failure to attract investment in an environment of policy stability the SC, which transferred the winding up the same order as our geological underpinning a rate of return com- proceedings to the NCLT. The judgment siblings has kept us as a big net mensurate with the risk involved in said: “The proceedings for winding up of importer of minerals. In spite of exploration. While we have politi- a company are actually proceedings to the government allowing 100 per cal stability, the MMDR Act, 1957 which the entire body of creditors is a cent foreign direct investment has proved to be unstable. Not only party. The proceeding might have been (FDI) in the mining sector in has the Act been subject to amend- initiated by one or more creditors, but by February 2000 and the subsequent ments from time to time, many of its a deeming fiction the petition is treated as revision of national mineral policy provisions have not been honoured. a joint petition. The official liquidator according the private sector a sig- Moreover, the unconscionably acts for and on behalf of the entire body nificant role in exploration, the sit- long time that the authorities con- of creditors.” uation on the ground has remained cerned take in processing recon- unchanged. The only way to naissance permits, prospecting Official absolved along with company reduce our dependence on miner- licences and mining leases has com- A food adulteration case against als imports is to secure FDI on a promised India’s appeal as a mining Hindustan Unilever over a tin of Dalda large scale and adopt modern investment destination for foreign vanaspati ghee dragged on for three exploration technologies by mak- groups. No wonder then over the decades in various courts and ultimately last three years, India ceased to find the Nominated Officer of the company was a place among attractive destina- acquitted by the SC last month. The tions for investment opportunities criminal case shuttled between the trial in Fraser Institute’s annual survey of court, the sessions court, the Madhya mining companies. Pradesh High Court and the SC several times. Meanwhile, the Food Safety and Are tax rates in India a Standards Act replaced the Food disincentive for investment Adulteration Act in 2006, complicating in mining? matters further. The high court acquitted The mining industry in India the company, but convicted the officer. On remains the highest taxed in the appeal, the SC held that “in the absence of world. Let’s take the typical case of the company, the Nominated Person iron ore. The new iron ore mines cannot be convicted or vice versa”. Since here have an effective tax rate the company was not convicted, it will be (ETR) of 54 per cent and the unfair to the officer who has been facing existing ones 58 per cent. trial for more than last 30 years, the Compare that with ETR of judgment said. 34 per cent in Canada and 39.7 per cent in both Aust- ralia and South Africa.