Chanakya IAS Academy Blog

  • Issues in the Indian Aviation Sector
    • The Indian Aviation sector has not been able to develop in accordance with its true potential. Out of 125 crore Indians, 35 crore are middle-class but the number of tickets sold is only eight crore. It’s a pity that middle-class Indians with reasonable amount of disposable income are not able to fly once in four years.
    • 5/20 rule- According to the rule, local airlines can fly overseas only after 5 years of operational experience and a fleet of atleast 20 aircraft. According to airlines, this restricts the entry of new players into more profitable international routes for a substantial period of 5 years.
    • Lack of regional connectivity- Many parts of India especially the North East lack the necessary air connectivity.
    • The airlines in India face multiple other issues related to taxation and fiscal policies such as sales tax on ATF, airport charges, service tax on fares and withholding tax on aircraft leases.
  • Salient features of the policy
    • The policy speaks about giving a boost to the domestic aviation sector, promoting regional connectivity and bring flying to the common man
    • It has set a number of broad aims in the form of
      • Propelling India to become the 3rd largest civil aviation market by 2022
      • Domestic ticketing to grow to 30 crore by 2022 from current 8 crore in 2015.
      • Cargo volumes to increase to 10 million tonnes from current 4 million by 2027
      • Promoting Make in India in the aviation sector
      • Enhancing ease of doing business through deregulation, simplified procedures and e-governance
    • The Broad features of the policy are
      • Fares capped: As part of regional connectivity scheme, fares to be capped at Rs 2,500 for 1 hour for regional routes. Government will provide support to fund airlines’ losses on such unserved routes “by a small levy per departure” on all domestic routes, except in remote ones and in north-eastern States.
      • 5/20 rule scrapped: Any airline can fly overseas on deployment of 20% of its total capacity or 20 planes, whichever is higher, for domestic operations
      • Regional Connectivity- Tax incentives for all airlines for operating on hitherto unserved routes under the new regional connectivity scheme
      • Open-sky policy- India will have an open-sky policy for countries beyond the 5,000-km radius from Delhi on a reciprocal basis. This means that airlines from European or Saarc countries will have unlimited access, in terms of number of flights and seats, to Indian airports, leading to increased flight frequencies with these countries
      • No frills airports- government will look to develop about 350 dilapidated or underused airstrips across India into “no frills airports“
      • Greenfield and brownfield airports-Development of greenfield and brownfield airports by State government, private sector or in PPP mode to be encouraged.
      • Heli hubs- Four heli-hubs to be developed; Helicopter Emergency Medical Services to be facilitated
      • Cess- The regional connectivity stress proposed in the earlier draft has been done away with.
    • Criticism and issues left unaddressed
      • Issues such as professionalising the crucial entities that govern aviation safety and security such as Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security (BACS) have been left unaddressed.
        • Though measures have been announced to strengthen both these entities and bridge the deficit, the policy is silent on how to radically transform these organisations to meet modern-day challenges and to be process-driven to deliver world-class service.
      • Airports Authority of India (AAI) - there is very little clarity on the way forward for the AAI or about its listing in the stock exchanges. According to analysts, this is a big negative as India’s massive airport infrastructure development plans requires a strong entity to see the execution through. Analysts feel that the AAI focuses heavily on capital expenses.
        • The policy is silent on long-term plans for airport development. Industry observers expected directions on the hiving off Air Navigation Services (ANS) from the AAI and making it an independent, professional body.
      • The NCAP is also silent on the formation of an independent Civil Aviation Authority (CAA). The policy also does not say what the government is doing with Air India and the way forward for the airline.
      • Thumbs-down from private airlines- The various private airlines claim that the policy is excessively restrictive. Particular points of discomfort include the capping of fares and 0/20 rule in place of 5/20 rule.
        • 0/20 rule will not help new carriers like Vistara and AirAsia India significantly as they cannot fast track expansion owing to a resource crunch.
      • The NCAP gives no direction on removing the negative fiscal regime on Indian airlines which includes sales tax on ATF and other taxation measures. These have not been effectively addressed.
      • The policy has not given any direction for improvement in regulatory and policy-making competence. There has been no direction on improving institutional capability in the Ministry of Civil Aviation.
      • The various provisions related to sources of viability gap funding remain unanswered.
      • The benefits of subsidising the airfare may not necessarily accrue to the target middle-class, also highlighted by the Economic Survey 2015-16. Many experts say linking fare to some cost elements of airlines, like the ATF prices would have served better.
    • Way ahead
      • The policy is quite comprehensive and well-intentioned. However, attracting private capital to loss-making projects without viable funding will be a major issue
      • The issues faced by the private airlines such as ATF and negative fiscal environment need to be ironed out.
      • Finally, the vision spelled out in the policy is quite laudable. Implementation is the key in its transformation into reality.

Sources

  • 1.The Hindu
  • 2.PIB
  • 3.Indian express
Read 270 times Last modified on Monday, 11 July 2016 17:16
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