Events & Issus

New Delhi, 4 August 2016

New Aviation Policy

WILL IT BE A GAME CHANGER?

By Dhurjati Mukherjee

India has the potential to be among the top nations of the world in terms of domestic and international passenger traffic. However, despite a strong middle class of about 30 crores and a rapidly growing economy, these advantages have not helped the country’s aviation sector. Whereby, today woefully it is ranked 10^th in the world in terms of number of passengers.

Consequently, there is a urgent need to promote the growth of our aviation sector in a significant manner as its development would have a multiplier effect on the economy. Towards that end, the Modi-led NDA Government recently unveiled a draft civil aviation policy, reportedly on the feedback it had received from experts and different stakeholders.

Notably, the new policy proposes to abolish service tax on MRO (maintenance, repair, overhaul) services provided in India and allow an  increase in the tax-free period for storage of spares imported by MROs. Alongside, post-April 2020, open skies arrangement with countries within 5,000 km radius would be considered along-with a proposal to allow FDI in India’s airlines over the current 49 per cent.

Significantly, in another initiative in the draft policy, the Aviation Ministry said that it is looking at liberalizing the bilateral regime by permitting open skies between India and SAARC nations and countries beyond 5,000 km radius of Delhi. 

Furthermore, an additional important initiative in the new policy is the Government’s intention of providing viability gap funding (VGF) to airlines flying to under-served and un-served destinations to keep air fares less than Rs 2,500 per flying hour on regional routes. It is understood that the VGF will be indexed to aviation turbine fuel (ATF) prices and to inflation.

Also, while the Centre would provide 80 per cent of the resources to bridge losses incurred by airlines by flying to these routes, the remaining amount would have to be pitched in by the States. Besides, there would be no service tax on tickets on regional flights.

Asserted founder of India’s first low-fare carrier Air Deccan GR Gopinath, “The intention of VGF is good but not practical to implement as State Governments are involved and it is difficult to determine losses of regional airlines.

“Meanwhile, the cost of an one hour flight at 75 per cent occupancy is Rs.3500 to Rs.3800. The Government wants airlines to charge not more than Rs.2500 and losses therein will be reimbursed. It would be difficult to determine the loss of the airline and thus could be ‘messy,” he observed.

In addition, the policy also proposes to develop no-frills airports at over 400 unused air strips across the country at an estimated cost of around Rs 50 crores each for supporting flights to unconnected destinations.

Whereby, the push for air travel proposed under the regional connectivity scheme is expected to boost domestic air traffic from 70 million now to 300 million by 2022. And domestic air ticketing is expected to go up further to 500 million by 2027.

As regards international travel, the policy also proposes a model to auction bilateral air traffic rights to countries which are at a distance of less than 5,000 km. “For countries within 5,000 km where domestic airlines have not fully utilized their quota, additional seats above existing rights would be allotted by bidding for a three-year period.

Pertinently, the proceeds of the auction would be used to fund regional flying in the country,” stated the Civil Aviation Secretary.

Moreover, the aviation policy has already been put up for public consultations. Thereafter a draft Cabinet note would be framed and sent for inter-Ministerial consultations after which the policy would be formally accepted.

Undeniably, some measures announced in the new policy are welcome. The decision to cover the un-served areas and to give concessions in certain fields has rightly been taken. With the obvious aim: To ensure that more and more people travel by air.

Another noteworthy feature of the policy is that the Government has rightly decided that four hours prior to departure of a flight, air tickets would be made available at rates equivalent to AC-II tier of the railways.

There is no gainsaying, that the Modi Government’s integrated Civil Aviation Policy has the potential to be a game changer not just for the airline industry’s revival and growth but also for the Administration vis-à-vis the  policy-making process and orientation.

Undoubtedly, a sustained engagement with stakeholders and a win-win policy orientation can be adopted for other sectors too. The crux of the policy is the dove-tailing of industry growth with passenger benefits.

Importantly, it is the policy clearly states that the Government intends more travelers from the 30-crore strong middle class fly as this would help the troubled airline industry by boosting revenues and perhaps profitability too.

True, low-cost airlines played a major role in making flying affordable for the upper middle and middle classes, but the growth and expansion in number of tickets sold has not been substantial and sustained.

One such initiative is the Regional Connectivity Scheme with a cap of Rs 2500 which is expected to lure more people to fly. Similarly, diluting the norms for airline companies to fly on international routes, namely the 5/20 rule, would mean more frequent flights and at competitive prices.

All in all, it seems the whole objective of the policy is geared to make air travel becomes more accessible. Not a few however, point out that instead of going in for huge investment in bullet trains, it would be better to make air travel cheap.

What is more air connectivity to important towns, which have been outlined in the policy, would benefit many people who would believe in spending a minimum time travelling. However, the impending problem of noise pollution in and around airports needs to be taken in to account.  

With India’s development and diversification of industrial activities to big towns, there is need for air connectivity to places like Amritsar, Dhanbad, Bhopal and Kanpur as also increasing flights to tourist spots like Port Blair and Shimla.

This is all the more necessary at this juncture as there is lot of congestion on railway tracks and it is very difficult with the rise in the number of trains.  Think, even superfast trains like Rajdhani and Duronto are running late almost regularly (between 1-4 hours) due to congestion of tracks.

Clearly, this underscores the fact that air travel has to be a cost effective alternative. Plainly, the aviation policy is not only timely but also judicious. ----- INFA   

(Copyright, India News and Feature Alliance)