Jan. 5 (Bloomberg) -- Just when it looked like India had found a way to modernize its decrepit airports, squeamish bureaucrats and stubborn politicians discovered new tactics to derail the plan.

It was clear to policy makers that privatization was inevitable when India resolved, more than eight years ago, to upgrade the state-run airports so aptly described as ``a disaster'' by Hong Kong investor Marc Faber.

``Looking at the quantum of investment required,'' the Indian government's 1997 policy on airport modernization said, ``the answer to all the problems lies in the infusion of private -- including foreign -- investment in this sector.''

Announcing a pragmatic policy was the easy part; trying to implement it has been a nightmare.

After several false starts and midcourse corrections, India is still waiting for politicians and officials to end their debates and hand over management of two of the country's busiest airports -- Mumbai and New Delhi -- to private bidders so they can invest the $3.5 billion required to revamp them.

The transactions, which were initially expected to be completed by May 2004, missed yet another deadline last week because of bureaucratic overkill.

Meanwhile in Bangalore, Unique Zurich Airport AG recently began constructing a new, privately owned airfield.

The Bangalore airport will be ready in 2008 -- a full 17 years after Unique, which operates Switzerland's busiest airfield, made its first construction application.

The inordinate delays are becoming unaffordable.

Getting Crowded

The undercapitalized Mumbai and New Delhi airports are fast reaching a point where they will simply stop functioning, choked by traffic that is growing 20 percent a year.

The two airports are forecast to handle a combined 187 million passengers in 2040, more than a fivefold increase from today.

The projections imply that Mumbai and New Delhi will be as busy then as airports in Atlanta and Chicago are now.

That may turn out to be a conservative estimate.

The Indian economy is surging. By 2040, per capita gross domestic product will shoot up to $8,442, from an estimated $691 now, Goldman Sachs Group Inc. said in a recent report. At the same time, budget airlines are making air travel more affordable for more Indians.

Six million Indian tourists ventured overseas in 2004, a 15 percent increase from the previous year.

Recently, India displaced the U.S. as the second-most favored destination for foreign direct investors after China, according to consulting firm A.T. Kearney Inc.

More Travel

More foreign-owned factories, software companies and call centers mean more overseas executives will be traveling into the country. That makes it even more imperative for India to modernize the Mumbai and New Delhi airports without delay.

Bureaucrats don't quite see the urgency.

When the time came for a committee of officials to advise the government on which bidder possessed the credentials to refurbish the airports, at least one member raised fresh doubts about whether the state-appointed independent consultant had evaluated the technical bids fairly.

The consultant, it seems, had declared an end to the contest even before financial bids could be opened.

After technical evaluation, only one bidder was left in the race for each airport. Six consortiums had applied for Mumbai and five had bid for New Delhi.

According to Indian newspaper reports, Reliance Airport Developers Pvt., a company set up by Anil Ambani, the younger son of the late Indian petrochemical tycoon, Dhirubhai Ambani, is the one short-listed for Mumbai.

Ambani Factor

Any government decision involving the Reliance group, now divided between Anil and his elder brother Mukesh, invites media scrutiny. And that's perhaps the main reason why officials -- and politicians -- are reluctant to sign off on the transaction.

Since the objections were raised after a government panel had reviewed the consultant's appraisal and found it aboveboard, the only way to silence criticism, without appearing to be helping or hurting Reliance, was to throw another layer of bureaucracy at the problem.

This was done on Dec. 21, when a new group was set up to review the technical bids once again. The Dec. 31 deadline for privatizing the airports came and went, like several others before it.

Frustrating as it is, the bureaucratic wrangling over procedures may be a lesser problem than the political opposition to the privatization plan.

Political Twist

India's four major left-wing parties have asked Prime Minister Manmohan Singh to scrap the bidding and allow the state- run Airports Authority of India, which manages most of the country's airfields, to modernize New Delhi and Mumbai on its own.

And how will the airports authority raise money? By selling bonds, of course.

The bond financing model has delayed privatization of U.S. airports, a key reason why they lag behind their European and Asian rivals in customer service. Besides, if dollops of debt were the only thing required to modernize public services in India, the rail network, which has a dedicated money-raising unit, wouldn't be in such a mess.

Unreasonable as it is, the communist politicians' demand can't be easily dismissed by Singh because he's in power with their support.

Six out of 10 people flying into and out of India use Mumbai or New Delhi. The airport authority isn't just controlling the airports; it's holding the country's future for ransom. The sooner that changes, the better it will be for India.

To contact the writer of this column: Andy Mukherjee in Singapore amukherjee@bloomberg.net.

Last Updated: January 4, 2006 13:43 EST