Do government bailouts work?

₹62,000 crore.

That’s the cheque taxpayers had to cut just to clean up Air India’s books before it could fly into Tata’s hangar in 2022. The very next year, the government promised nearly ₹90,000 crore to BSNL in yet another revival bid. More recently, Vodafone Idea’s mountain of dues to the government was converted to equity. Add to that the SBI-led bailout of Yes Bank that’s in the news and you begin to see a pattern.

Every one of these lifelines pulled taxpayer money away from highways, hospitals and public universities. The kind of stuff that builds nations. For instance, Air India’s rescue in FY22 alone took about 0.26%1 of India’s GDP at the time.

And yet, officials argue that some institutions are too big to fail, and that a timely intervention is better than a full-blown collapse.

So, what gives? Do these bailouts actually fix anything, or do they just delay the inevitable while taxpayers foot the bill?

Let’s look at a few marquee cases.

Take Air India. For nearly a decade, from FY2012 to FY21, the airline racked up nearly ₹78,000 crore in losses. Interest payments alone were eating up ₹4,000 crore a year. Ballooning fuel costs, poorly timed fleet orders and a service reputation that lagged private rivals sent the airline from one red quarter to the next. So no wonder potential buyers stayed away: acquiring Air India meant inheriting its mountain of debt and a sprawling bureaucratic culture.

And that’s when the government made a decisive, if expensive, cut. In 2022, it parked nearly ₹61,000 crore of liabilities in a specially created holding company called Air India Assets Holding Ltd, and handed over a near debt‑free airline to the Tatas. Add it all up, and taxpayers had shelled out over ₹90,000 crore2 in total for the bailout since 2012. This was steep, but the logic was clear: end the bleeding, save over 10,000 direct jobs, preserve precious airport slots and let someone who knows this business take over.

And it did change things. Two years on, early metrics hint at a turnaround. Punctuality has climbed, wide‑body cabins are being refurbished and the Tatas have merged Vistara into Air India to create scale. The airline is still some distance from profitability but analysts believe operational profits could arrive as early as FY27.

So, for Air India, it’s safe to say that the bailout was a partial success. Yes, the government footed the bill of over ₹90,000 crore. But at least that nightmare is over, and they were able to sell their stake to someone who manages it responsibly.

Compare that with Yes Bank. By 2019, the bank’s headlong rush into risky corporate loans had poisoned its books. It had lent primarily to struggling companies, which led to Yes Bank’s non-performing assets (NPAs) being 7 times higher than they had reported. NPAs are basically loans on which the borrower has stopped paying interest or principal for over three months. This means that the bank can no longer count on getting the money back easily.

The Reserve Bank of India (RBI) uncovered this, credit rating agencies quickly downgraded ratings, depositors panicked and the share price collapsed by over 80% in just twelve months.

So the RBI stepped in and issued a moratorium, which capped withdrawals at ₹50,000. Bondholders were forced to absorb over ₹8,400 crore in write‑offs3, and an SBI‑led consortium injected ₹10,000 crore for a 49% stake. It was a forced rescue but it worked. Because four years later, the turnaround looks almost clinical. Net non‑performing assets sit at 0.3%, the best since the scam in 2020. Net profit leapt 92% year‑on‑year in the recent quarter, the highest since the scandal broke. And Japan’s Sumitomo Mitsui is in talks to purchase SBI’s stake, signaling private capital is happy to take over.

Then we have the case of Vodafone Idea (Vi).

Its troubles began when Jio entered the telecom sector in 2016 with rock‑bottom tariffs. I still remember people waiting in line to get a free SIM. Jio’s entry ate into Vodafone and Idea’s shares, dwindling their average revenue per user (ARPU). And this led to Vodafone and Idea Cellular merging in 2018 to increase market share. However, this only worsened their losses. Then came a Supreme Court verdict in 2019, slapping the new entity with ₹58,000 crore in adjusted gross revenue dues. In 2025, total debt and interest crossed the ₹2.5 lakh‑crore mark. Routine capex for 4G — let alone 5G — became impossible.

So why did the government bail it out, you ask?

Well, you see, there are only two other prominent players in this market – Jio and Airtel. If Vi went bankrupt, it would hollow out the competition, giving the incumbents far more power over pricing and service quality. Policymakers, therefore, scrambled to keep the company afloat because an implosion would have left the country teetering on a de facto duopoly – a condition where only two companies dominate the market share.

However, the government didn’t write a cheque this time, but it did convert ₹16,000 crore of interest dues into equity, becoming a shareholder. No fresh cash changed hands, but the mover brought Vodafone Idea time to seek investors. And more recently, the government also waived ₹37,000 crore in spectrum dues to raise its stake to 49% in the company. But even after raising ₹18,000 crore from private investors last year, Vi still loses thousands of crores in cash every quarter and lags in spectrum holdings. Survival too remains doubtful at this juncture — at least for now.

So yeah, the bailout bought time but not certainty.

And lastly we have BSNL — the black hole of bailouts.

It has already absorbed over ₹3.2 lakh crore4 from taxpayers! Yup. Its latest bailout package in 2023 was for around ₹89,000 crore. This package includes amounts for 4G/5G spectrums, voluntary retirement schemes for employees and debt restructuring.

On paper, the reasoning makes sense. BSNL plays a vital role in defense communication, especially in far-flung regions. It also ensures that the telecom sector doesn’t devolve into a private duopoly. BSNL too is doing its bit to bounce back. It hopes a steep price reduction will lure users back. For instance, BSNL’s 365‑day unlimited plan now costs ₹1,999, compared to Jio and Airtel’s ₹3,599. But will this attract more people if they continue to have poor coverage and bad 4G and 5G reception? This is why the government gave more money to the company to purchase spectrum allocations. Will it work out? We’re not sure, but we’re hopeful that it does.

But overall, it seems like a rescue without reform.

And all of that brings us to today’s topic: Do government bailouts work?

Well, sometimes they do. Air India got a clean break and a private owner. Yes Bank got new capital and better governance. But not always, as we see with Vi and BSNL.

And one pattern is hard to miss: bailouts succeed only when accompanied by ruthless restructuring, fresh governance and an exit plan for the state.

When that discipline goes missing, things unravel. BSNL proves that money without change is just an expensive denial. Vodafone Idea sits somewhere in between — a company with potential and a lot of support, but still nothing to cheer about.

It is difficult to balance this out, but a blanket ban on bailouts is no answer either. The knock‑on effects run deeper. Most troubled giants owe their largest dues to public‑sector banks — banks that hold our deposits. If a rescue doesn’t come, the damage simply trickles down to the rest of the financial system. And eventually, it lands right back on the taxpayer’s lap.

So yeah, bailouts are messy.

And maybe the only way to tilt the odds is to pair every rupee of rescue with hard, uncomfortable reform — and a countdown clock that tells us exactly when the state will get out of the way. Otherwise, the taxpayer foots the bill — again and again — with nothing to show for it. Finshots