New civil aviation policy draft holds promise
The Government's proposed civil aviation policy may not contain all the solutions to revamping the ailing sector but it is a significant step towards fixing the industry which has been performing below its potential, even after two waves of liberalisation reforms. It is too early to say whether the Modi administration will be able to usher in a more successful third wave (we don't even have a final policy yet) but at least the draft released on Friday makes the right kind of noises. The big positive here is the initiative to transform India into a Maintenance-Repair-Operations hub. This will necessitate reforming and rationalising existing rules and policies with regard to ground operations, cargo handling, jet re-fuelling etc. Generally speaking, the existing regulations are not business-friendly, as a result of which Indian airlines find it cheaper to send their aircraft to Sri lanka, Singapore, Malaysia or the UAE for maintenance and repairs. The MRO business of Indian operators alone is valued at `5,000 crore annually, 90 per cent of which is spent abroad. If the Government can reverse this trend, it will be a game-changer. Moreover, it is not just the MRO sector that is impacted by high costs and charges. The civil aviation industry in general is suffering due to an oppressive financial regime which includes high sales tax on Aviation Turbine Fuel, exorbitant airport charges etc. The Government has indicated that it is looking into these issues and will possibly introduce fiscal incentives to remove some of the existing dragnets.
The other big proposal in the new policy is the Regional Connectivity Scheme which aims to improve coverage to under-served areas. The Government is looking to cap the cost of travelling to and from such destinations at `2,500 per flying hour through a direct subsidy. The funds for this will be raised through a two per cent cess on the more lucrative routes, which will possibly make tickets in the latter segment slightly pricier. Also, this is not an entirely new idea. Since 1994, the Government's Route Dispersal Guidelines have compelled airlines to use a certain percentage of their revenues from profit-making routes to fly on loss-making sectors such as in the North-East, Jammu & Kashmir, Andaman & Nicobar Islands etc. Over the years, the RDG, which remains untouched even in the new policy, has come in for a lot of criticism. It is still to be seen how recent proposals will balance the demands of a free market vis-à-vis the Government's socio-political objectives. The long-term goal is to convert loss-making routes into profit-making ones, but for that to happen, civil aviation reforms alone will not be enough; overall economic development is the key.
Another contentious area that has not been considered in the new policy is the so-called 5/20 requirement, which mandates that, for an Indian airline to fly to international destinations, it must have at least five years of operational experience and a 20-aircraft fleet. This policy discriminates against new airline operators, stifles competition, and worse, specifically penalises Indian operators, as it is not applied to foreign airlines seeking to fly to Indian destinations. The Government has said that it is studying the 5/20 principle. Hopefully, a positive decision will be taken sooner than later.