Positive outlook

For a policy that has been over a decade-and-a-half in the making — the last formal announcement was in 1992 — the new draft civil aviation policy reads more like a statement of intent than a clear roadmap. In fact, one could argue that India doesn’t require a formal civil aviation policy having, much like the IT industry, grown quite well without one. Between 2000 and 2010, air operations grew 160 per cent. India is now the world’s fourth largest domestic aviation market. Over the next half-a-decade, the sector is expected to clock a growth rate of 10 per cent a year, well over the GDP growth rate.

But this remarkable surge masks a highly skewed development. Only 75 of the 476 airstrips in the country have scheduled operations while the principal hubs of Delhi and Mumbai are already stretched to capacity. Per capita availability of seats is a quarter that of Thailand or Indonesia. Despite rising fleet strength, key activities such as maintenance, repair and overhaul (MRO) take place largely overseas. And worryingly, India’s overall aviation safety rating was lowered due to a critical shortage of flight control personnel and safety inspectors. The draft policy does address some of the key concerns. While a new regional connectivity scheme is expected to drive connectivity to remote areas, the proposals to cap fares at ₹2,500 for flights of less than one hour and introduce a 2 per cent cess on other fares to provide a viability gap funding to operators are market-distorting and fraught with problems. On infrastructure, the proposal to give tax breaks for MRO services is welcome. The move to give infrastructure status to co-located MRO, ground and cargo handling, as also aviation fuel handling, will provide tax benefits as well as open up cheaper term funding opportunities. On the ease of doing business front, merely digitising the DGCA’s services is welcome but not enough. The industry would have wanted greater clarity on issues such as fleet and capital requirements, which act as entry barriers. Disappointingly, the policy also does not clear the air on the so-called 5/20 rule (five years of domestic operations and 20 aircraft) for domestic airlines wishing to fly abroad, which provides an edge to select incumbent players at the expense of new entrants. The move to liberalise helicopter operations, however, is a positive for this neglected sector.

There arekey areas where the ministry’s intent can be achieved only if other agencies cooperate. From tax breaks that the finance ministry has to approve, to reducing tax on aviation fuel for which States have to agree, to cutting airport charges, which other stakeholders need to accept, there are far too many ifs and buts for the draft policy to be truly meaningful. One can only hope that the final policy will provide the kind of clarity stakeholders are seeking.

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