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Major aviation policy decisions in India, like the FDI policy, have often been implemented in an “ad hoc manner” and retraced at times, leading to political controversies, disillusioned investors and industry losses, an aviation consultancy firm said today.
While liberalisation of FDI policy to allow foreign airlines to invest in Indian carriers was a welcome step, “ the manner of its execution has left a lot to be desired,” the Centre for Asia Pacific Aviation (CAPA) said.
“India has made no serious attempt to address the industry’s core structural challenges, particularly the fiscal and cost environment, which is particularly hostile” now due to “stubbornly high fuel prices compounded by a sharp depreciation of rupee and a punitive ad valorem sales tax.”
Wrong signal
In a latest study — ‘India Aviation Outlook Report’ for 2013-14, the Sydney-based firm said that from “confusion” about whether the FDI policy applied only to incumbent carriers or start-ups as well, to the controversy about the allocation of bilateral entitlements, “the end result sends the wrong signal to prospective investors.”
“Such major decisions have been taken in the absence of a policy framework and without the institutional capabilities to assess and understand their implications,” CAPA said.
Major policy decisions were “frequently implemented in an ad hoc manner on the basis of limited consultation, without consideration for the overall structural dynamics of the industry and without sufficient clarity on the detail.
“And at times there has been hesitation which has led to steps being re-traced. This has ultimately led to political controversies, disillusioned investors and industry losses.”
Estimates modest growth
In a scathing criticism, it said the market continued to underperform because “ambitious reforms, intended to have a positive and profound impact on the sector, continue to be introduced piecemeal, with no transparent policy or regulatory framework.”
In spite of such a policy scenario, CAPA estimated a modest growth of 4-6 per cent to return to the domestic market in the next financial year, while international traffic could expand at a 10-12 per cent rate.
Maintaining that regulatory intervention on commercial issues continues to “bamboozle the market”, it said “unfortunately, instead of ushering in a new environment where airlines could finally have the freedom to emulate global practice with respect to ancillaries, the government’s indecisiveness about the extent of the regulatory easing has only created greater confusion.”
In this context, it referred to the recent unbundling of services for which airlines could charge fees separately and said that within weeks of the announcement, “the government advised airlines that they could collect preferred seating fees on no more than 25 per cent of the seats on an aircraft.”
CAPA also lamented that the long-awaited comprehensive new civil aviation policy “has remained in draft format for the better part of two decades.”
The 320-page CAPA analysis also touched upon the performance of Indian airlines and the role of regulators like the Directorate General of Civil Aviation and the Airports Economic Regulatory Authority.
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