In a note sent to the Union Cabinet recently, the ministry has said the recommendations of the Kelkar committee are in the form of a total strategy package. "Phase II of the recommendations of the committee is a sequel to the suggestions made in Phase I for injection of funds. Phase II can be successfully and meaningfully implemented only when investments proposed in phase I are made available to the extent and in the form suggested by the Kelkar committee," it said.

Justifying a grant of Rs 200 crore during the current financial year, as recommended by the committee, the ministry said the losses of IA were largely due to the factors over which the organisation had no control. It would, therefore, be fair to compensate the airline for such losses incurred as a result of the government's decision relating to the grounding of the entire fleet of A320,merger of Vayudoot and Indian Airlines' operations on uneconomic routes to meet the social obligations.

As for the committee's recommendation for additional equity injection of Rs 125 crore by the government, the ministry noted that the company's present share capital of Rs 105 crore was too slender for an aviation company of the size of Indian Airlines. Injection of the substantial public equity as suggested by the committee would have to be balanced by a similar injection from the Government, it argued. "This would bolster public confidence which is very crucial for retaining its market share", the ministry said.

It also justified an interest-free subordinated loan of Rs 150 crore by saying that it would, otherwise, be difficult for the IA to access and sustain commercial borrowings at this stage for any fleet expansion.

The ministry is credited with the view that all the decisions involving substantial funds should be implemented immediately either through contingency advance or by way ofsupplementary demands for grants or through the buoyancy of revenues during the current fiscal.

To bolster its argument, the civil aviation ministry has recalled the Kelkar committee report which said IA required funds for fleet renewal immediately, failing which its market share would be reduced to a mere 11 per cent in 2002-03.

For revival of IA, the Kelkar committee recommended a two-phased financial strategy. In the first phase, funds would be provided by the government of India, IA employees and the company, to strengthen the balance sheet. In the second phase, the company would make an initial public offering to mobilise funds from the market.

The committee said the government investment would be a sound financial proposition since returns would be as much as 48 per cent by the year 1999-2000.

Significantly, a sub-committee under BN Makhija, principal advisor (transport) of the Planning Commission to consider financing pattern of the IA also concurred with Kelkar committee's majorrecommendations.