Air pockets

Our politicians may believe that they are firmly in charge of making policy, but it is the bureaucracy which does the real work of framing laws, drafting rules and regulations and actually administering the policy. This is one of the reasons why there are often such large gaps between intention and ground realities, especially when it comes to reform that has to do with loosening the iron grip of the ‘steel frame’. The Centre’s move to open up India’s civil aviation market and make it easier for domestic carriers to fly abroad is a good example of this. The plan to axe the so-called 5/20 rule — the requirement of having been operational for at least five years and having at least 20 aircraft as a precondition for allowing domestic Indian carriers to fly to overseas destinations — is a good one if it stopped there. After all, this was a rule with no rationale other than the transparent protection of a few vested interests. But by throwing in a twist in the form of a complex system of flying credits — airlines will need to accumulate a certain amount of credits in order to be eligible for overseas flying rights — one barrier has been replaced with another. Even more inexplicably, by mandating a minimum six hour flying time requirement — which will eliminate all the high-volume routes in the neighbourhood and the Gulf region — the government has only protected existing players and deprived passengers of the benefits of real competition.

This is par for the course. India adopted an ‘open skies’ policy as far back as 1991, but the reality has been that the policy has been gamed by lobbies and vested interests at every step. To cite just one instance, despite ‘open skies’, every single aircraft added to the fleet had to be individually approved; the government even decided the timing of induction, ostensibly to ensure against overcapacity in the sector. All this did not prevent the collapse of most of the initial entrants, anyway. The new credits system is similar. It’s meant to promote connectivity to underserved areas by giving more credits to those who fly there. But existing players already have overseas rights and will have no interest in flying to uneconomical locations, while new players cannot afford to do so. Nor can they buy them from others. As a result, the tenfold credits accumulated by, say, a regional helicopter service operator is worthless as he or she is unlikely to go into global long-haul. One could go on. Back in 1997, the Centre shifted the goalposts on foreign equity in domestic to effectively block the Tata-Singapore Airline JV.

All these years of nanny state protectionism have served India poorly, and passengers have paid a heavy price for this. Connectivity is poor, infrastructure limited, and costs are high. Incremental reforms have led to uneven development and high user costs, whether for air passengers or airlines. It is time for some disruptive deregulation.

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