The Air India catastrophe should catalyse deep structural reform in the country

The timing is significant—this accident occurred soon after Air India transitioned from public to private ownership, highlighting three fundamental challenges on India’s runway toward developed nation status: How should we balance public and private sector roles? What is the optimal level of market concentration versus competition? And should India Inc embrace specialization or continue with diversified conglomerates that span multiple industries?

These questions go beyond aviation, touching the very foundation of India’s economic strategy. Yet, aviation provides a perfect case study for examining these broader challenges. Let us start with the public versus public ownership.

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India is conspicuous with a disproportionately large public sector, compared to other emerging and advanced economies. India’s stock market is heavily dominated by state-owned enterprises. But our aviation sector, which has undergone complete privatization, offers a contrast.

Globally, aviation ownership models vary dramatically. West Asian carriers remain fully government-owned, Chinese airlines are government-dominated and some European carriers maintain partial government stakes—25% of British Airways’ parent company, for instance, is owned by Qatar Airways. Meanwhile, the US mirrors India’s approach of minimal government ownership. The privatization of Air India is considered one of the Indian government’s most successful divestments.

As the private sector takes control, the need for robust regulation becomes critical. The question is not a binary whether or not to privatize, but how to regulate businesses effectively, especially in industries where lives are at stake. The government’s role must evolve from owner-operator to an ever more vigilant regulator in both public perception and reality.

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Coming to the dilemma of competition versus concentration, India’s economy has long been marked by the outsized influence of family-owned business groups. Remarkably, several of the largest groups from the 1950s still dominate, with the composition of the top 25 largely unchanged since 2010. At their peak in 2012, these groups generated revenues equivalent to 20% of India’s GDP. While their dominance has declined somewhat since then, in 2020 that figure was still over 15%—higher than in 2001.

The aviation sector typifies these trends. In India, the combined market share of its top two airlines is larger than in other markets globally, far exceeding the share seen in the US, UK, China or Brazil. IndiGo and Air India, both privately owned, carried over 90% of air travellers last year. The US airline industry is also privately owned but its market has much more competition. While larger firms benefit from economies of scale and greater clout, extreme concentration can also stifle innovation and harm consumer interests.

Indian policymakers have been on top of this challenge. The sector has been opened to fresh competition repeatedly, but the industry has shown high business mortality, with a long list of airlines declared bankrupt or close to it; Sahara, Jet Airways, SpiceJet, Kingfisher and Go First tell a sobering tale of a harsh market.

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Why has competition withered in this sector? Is market size the determining factor (America’s air traffic is five times that of India), or are there policy or market failures? Cost and efficiency determine survival, but consumer choices matter. Notably, both Air India and IndiGo rank low in global service standards.

The transition from a state monopoly to private oligopoly outlines a delicate balance. While India needs stronger regulation in critical sectors, the broader economic imperative often calls for less onerous regulation; theEconomic Survey highlighted calls for greater deregulation and for government to get “out of the way.”

Coming to the third issue of specialization versus diversification, economic theory suggests that countries should specialize in industries where they have comparative advantage. We can illustrate this through Bollywood: If Shah Rukh Khan, an economics graduate, specialized in economics, he would have been a successful economist. But even if he were to become the world’s best economist, his ‘opportunity cost’ of missing a career as an actor would be too high, given the low wages he would earn compared to his earnings from cinema. Even with an absolute advantage in economics, his comparative advantage would lie in cinema.

Specialization versus diversification represents a distinct strategic choice from concentration versus competition. Firms can maintain high market concentration while remaining either specialized or diversified. The jury is certainly out on this.

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Global trends reveal fascinating patterns. While emerging-market conglomerates are increasingly diversifying, those in advanced economies, particularly the US, are moving towards specialization.

Emerging-market giants like the Tata Group in India (spanning salt to aviation), Samsung in South Korea and Fosun in China have expanded their sectoral reach dramatically, often doubling or tripling their presence across industries. Conversely, developed-market leaders like General Electric, Siemens and Johnson & Johnson have undergone significant consolidation or strategic splits. Most now operate as publicly traded entities with focused business models.

So what is the path forward? What does it imply for India’s aviation landscape—a three-way combination of private ownership, extreme concentration and the diversified nature of controlling conglomerates? This combination makes the sector distinctive globally but also potentially vulnerable.

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The stakes couldn’t be higher. Markets often face efficiency versus equity trade-offs. Beyond that, there are efficiency and public safety trade-offs, at least in perception. Ultimately, there are no concrete recipes for success. That said, these questions are pertinent. As India marches towards Viksit Bharat, we must find appropriate answers. Our aviation sector’s future—and by extension our broader economic strategy—depends on getting many balances right.

The Ahmedabad tragedy should serve as more than a moment of grief. It should catalyse the deeper structural reforms necessary for India’s sustainable development. Only through such introspection can we build an economy that is both dynamic and safe, competitive and responsible.

The authors are, respectively, operations director, Ashoka Isaac Center for Public Policy (ICPP); and professor of economics, and director of ICPP, Ashoka University.