Policy Promise: Key takeaways from NCAP, 2016

Key takeaways from NCAP, 2016

After being almost 11 months in the making and after several rounds of consultations among government, industry and other stakeholders, the National Civil Aviation Policy (NCAP) was finally put into place in June 2016. The NCAP is said to be bold, futuristic and reform oriented, in line with the stated approach of “less government, more governance”. It is based on the three pillars of connectivity, affordability and ease of doing business.

NCAP to the rescue

Perceived as providing an elitist service, the civil aviation sector in India has been over- taxed, over-regulated and over-protected. Characterised by high costs, it has been unable to reach its full potential.  In this context, the introduction of the NCAP, 2016 along with amendments in the foreign direct investment (FDI) policy is a step in the right direction. Introduced for the first time in 70 years, it is a comprehensive document which captures all the policy matters under one umbrella.

Salient features

The comprehensive NCAP document covers 22 critical areas of the civil aviation sector. The focal point of the policy is to convert the dream of regional air connectivity into a reality, making flying affordable and convenient for the masses. Moreover, an effort to establish an integrated ecosystem to propel growth in the sector is also elucidated in the document. With the NCAP in place, a two-four-year planning horizon has now been made possible for players in the sector, opening up a plethora of opportunities.

  • Regional Connectivity Scheme: The revival of airstrips and airports as no-frills airports at an indicative cost of Rs 0.5 billion-Rs 1 billion is the key theme. An airfare of Rs 2,500 has been fixed for an hour-long flight. Viability gap funding (VGF) will be provided to airlines through a regional connectivity fund. The responsibility of VGF will be shared by the Ministry of Civil Aviation and state governments in a 80:20 ratio, while for states in the Northeast, the ratio has been fixed at 90:10.
  • 5/20 rule: In a landmark move, the earlier 5/20 requirement for airlines to fly overseas has been replaced with a 0/20 scheme, providing a level playing field for airline operators. Airlines will now be permitted to commence international operations upon deploying 20 aircraft or 20 per cent of total capacity, whichever is higher, for domestic operations.
  • Open skies policy: The NCAP has facilitated the signing of open skies agreements on a reciprocal basis with SAARC countries and countries located beyond a 5,000 km radius of Delhi. In the case of code-share agreements, a significant change has been that airlines now just have to inform the government 30 days prior to starting the arrangement and do not have to seek permission as was the case earlier.
  • Airport development: The Airports Economic Regulatory Authority of India has now allowed upcoming airports to follow a hybrid till model for determining tariffs. Under this model, 30 per cent of non-aeronautical revenues will be used to cross-subsidise aeronautical charges.
  • Maintenance, repair and overhaul (MRO): No royalty will be levied on MRO service providers for a period of five years from the date of approval of the policy. There are other procedural simplifications with the aim of bringing down costs, so that Indian aircraft do not need to fly overseas for MRO services.

Further, the NCAP encapsulates, among others, provisions for the strengthening of air navigation services such as GPS Aided GEO Augmented Navigation (GAGAN); the use of information technology to make travel faster and more secure; liberalised ground handling policies which allow self-handling by airlines; the establishment of the National Aviation University for skill development.

The missing links

While the NCAP aims to address a gamut of issues plaguing the sector, some grey areas that require further attention still remain. The idea of 100 per cent FDI in airlines, though demanded by some industry stakeholders, has been dropped. The issues around excessive taxes on aviation turbine fuel and the promotion of business aviation have also been missed. Besides, the formation of an independent civil aviation authority and the hiving off of air navigation services from the Airports Authority of India (AAI)  remains long overdue.

The need for the privatisation of Air India has been highlighted time and again; however, the issue has not been touched upon in the NCAP. Besides, listing AAI and Pawan Hans on the market, a step that is expected to bring in more efficiency and accountability, remains a distant target. However, the redressal of some of these issues outside the purview of the NCAP remains an industry expectation.


While the plans and policies introduced are encouraging, it is the timely execution that will finally make a difference. This can be ensured by putting in place task forces and converting the policy into rules and regulations that are le-gally attainable. There is a need for greater institutionalisation to make the sector more process driven. Besides, from an airport development point of view, clear-cut, dedicated strategic planning for the next 5-10 years is also required.

Based on a presentation by Amber Dubey, Partner and Head, Aerospace and Defence, KPMG in India, at a recent India Infrastructure conference