The Government's regional air connectivity scheme has a snappy acronym, Udan, but will it workIJ The Universal Service Obligation fund was based on a similar idea, but could not drive the telecom sector. Simple market economics and not subsidy schemes can drive growth
The Union Government’s new scheme to promote regional connectivity has been titled, ‘Ude Desh Ka Aam Naagrik’, or Udan. A bureaucrat, sitting at Rajiv Gandhi Bhawan at the Safdarjung Airport must be feeling proud of himself or herself. But the scheme, whose basis is to promote short-haul regional connectivity by subsidising flights on underserved routes under an hour in length, by capping fares at Rs 2,500, with these routes to be served by smaller planes with 40 seats or less, may not be as snappy as its acronym. This is to be achieved by levying a ‘small’ fee on existing flyers. The quantum of the levy is yet to be determined and will be announced shortly.
Yet, should the Government have ever stepped this schemeIJ This Union Government should have learnt from something that the previous Bhartiya Janata Party-led Government did in 2002. This was the implementation of the Universal Service Obligation (USO) fund for telecom services. The idea was similar, in 2002, mobile telephony services were very limited in the country. High-speed mobile data was a pipe dream, but was connected outside major urban centres. The USO scheme was going to be a very small cess on very mobile bill and recharge that would help fund services in interior India.
It is not as if the USO scheme failed, but it was overtaken by simple market economics. And the groundwork for the success of the telecom revolution was also put into place by the same Atal Bihari Vajpayee Government with their new policy. For years, the USO fund kitty grew more and more and became a sort of kitty from which Governments dipped into to fund profligate schemes. It was only in 2011 that the USO fund was finally deployed for the role it was intended. The programme, now called ‘BharatNet’ with an allocated spend of Rs 20,000 crore, aims to connect every single gram panchayat with fibre-optic connectivity. Yet, Bharat sanchar Nigam limited (BSNl), which was tasked with implementing the program, missed several deadlines and is currently working towards completing the scheme by the end of 2018.
Yet, the simple fact is that private telecom operators are aggressively rolling out fourth-generation high-speed mobile data services across the country. The recent auctions of new spectrum might not have lived up to the Union Government’s revenue targets, but the the rollout of a new player in Reliance Jio has forced incumbents like Airtel and Vodafone to also up their game. Data costs are being driven down and high-speed data services are rapidly reaching every nook and corner of the country. Not through a Government mandated scheme or through subsidies, but thanks to free market competition. In fact, the telecom success story in India, a country where Governments in the past and present have resorted to knee-jerk socialism, is a stunning example of the success of capitalism.
Coming back to Udan, many of the contours of this plan are not clear. And unlike telecom, which in the past decade has become more of a basic human right, aviation, while vital for economic growth, is not at that level as yet. In 2016-2017, an estimated 125 million domestic flight segments will be flown. This keeps up with the very good growth rate of the past few years and the groundwork for this growth while started by the Vajpayee Government was expanded dramatically by the UPA Government’s.
Yet, 125 million domestic flight segments is not the same as 125 million people flying domestic flights. To use the telecom analogy again, analysts used to make the mistake of conflating the number of mobile telephony subscribers with the number of people who had mobile phone connections. Simply assuming that most people take return flights, that means only 60 million people in India take flights. Actually, a more realistic assessment, which factors business travel, and there are businessmen who take 50 plus flights a year, would have the number of people who actually fly in India at around approximately 25 million.
No doubt, as someone who stands in airport security queues far too often, this columnist can assure you that there are a lot of new first-time flyers in India but a bulk of air travelers in India are still a very small section of this country of 1.2 billion people. Getting more people to fly will not fundamentally change by driving regional air connectivity. Getting more people to fly in India is actually to build capacity at the bigger airports right now. India’s two largest aviation hubs, Delhi and Mumbai, particularly the latter, are clogged with passengers. Mumbai is also suffering from a lack of basic infrastructure as the airport cannot add runways. The need for building up infrastructure in India’s larger aviations centres is more vital than ever before.
Regional air connectivity does not mean people will be flying from small airport to small airport. Air travel statistics in India have proven that people wish to travel to large travel hubs. An overwhelming percentage of air travellers in India still fly to or from the major aviation hubs of Delhi, Mumbai and Chennai. But that said, subsidies are an established method of establishing connectivity to smaller towns and cities across the world, but nowhere has the plan been so large-scale as Udan wishes to be.
In the recent past, in India, several ‘regional’ airlines that were established failed, because they could not drive traffic volumes, and subsidised fares are no guarantee that passengers will fly on these routes, because Rs 2,500 is still a lot of money for a sub-500 kilometre sector.
However, all said and done, Indians will definitely be flying more. The recent decline in train travel on premium train routes where Indian Railways introduced an ill-advised ‘flexi-fare’ scheme, appeared to be the straw the broke the camel’s back as it seemed to convince travelers that the price value for railways was non-existent given the times involved. The first high-speed rail sectors are a still a decade away at the very best, until then indian aviation will continue to grow. But subsidy schemes are not not what will drive growth. Just like USO did not drive telecom, Udan will not drive aviation. Simple market economics will.
(The writer is Managing Editor, The Pioneer)