Towards Growth: Government initiatives driving sector development

Government initiatives driving sector development

In April 2017, the central government gave wing to its ambitious Regional Connectivity Scheme (RCS) by launching flights from Shimla, Nanded and Kadapa airports. The move is reflective of the intent of the government to develop a robust domestic civil aviation market. The foundation of this growth was laid in July 2016 when the government launched the much-awaited National Civil Aviation Policy (NCAP), 2016.

NCAP, 2016 – The game changer

After two drafts and several months of consultation, the industry received its first integrated aviation policy since 1947. Most of the reforms included under the policy were long awaited by the industry and hence well received by most  industry stakeholders. Further, the NCAP, 2016, assumes great importance in view of the government’s efforts to provide a boost to the Make in India initiative, making flying affordable to the masses and simplifying procedures, among others.

It is being lauded as the first comprehensive, reform-oriented policy that encompasses 22 critical areas of the civil aviation sector including the passenger, cargo, maintenance, repair, and overhaul (MRO), safety, air navigation services, infrastructure, education, and skill development segments. As a clear positive, both the MRO and cargo segments have been given due attention in the NCAP, 2016. However, industry stakeholders believe that separate policies for these segments are required to exploit their full potential. Moreover, the policy is a proactive endeavour on the part of the Ministry of Civil Aviation (MoCA) to provide air connectivity to Tier II and Tier III cities.

While the NCAP is intended to push growth in the sector, nonetheless, there are some points that require further thought and action. For instance, industry experts argue that the abolition of the 5/20 rule for international operations gives an unfair advantage to newcomers vis-à-vis established players operating in the sector. Further, the policy skips strategies to make the sector more institutionalised and process-driven. From an airport development point of view, clear-cut, dedicated strategic planning for the next 5-10 years is the need of the hour.

UDAN – The leading-edge element

The RCS, also termed Ude Desh ka Aam Naagrik (UDAN), is the key ingredient of the NCAP, 2016. The central government has established an inter-ministerial committee to supervise UDAN. The panel will be accountable for coordination among stakeholders, including state governments, for the time-bound implementation of the scheme.

The first round of bidding for the RCS has already been completed, while the second round is in progress. Under Phase I, the MoCA received 45 initial proposals from 11 bidders covering more than 200 regional routes. Of these, 128 routes have been awarded to five airlines – Alliance Air, SpiceJet, Turbo Megha, Air Odisha and Air Deccan. Besides, MoUs have been signed with the governments of various states including Bihar, Punjab, Tamil Nadu, Telangana, Maharashtra and Puducherry to promote regional air connectivity. In a landmark move, the first RCS flight was launched on the Delhi-Shimla route on April 27, 2017. Besides, flights have also been inaugurated from the Nanded, Kadapa and Ludhiana airports, among others.

Further, the government commenced the second round of bidding under the RCS on August 24, 2017 and has brought in a few amendments to ensure increased participation. These amendments include permitting routes with stage length less than 150 km for operation as RCS routes through fixed-wing aircraft, greater flexibility to selected airline operators (SAOs) by way of an increase in the maximum number of flights with viability gap funding (VGF) to 14 for priority areas, allowing SAOs to increase the number of flights on RCS routes any time and to any number, and the removal of minimum performance specifications on non-RCS routes. The last date of submission of initial proposals by airlines has been set as October 26, 2017 and the list of SAOs is likely to be announced by end-November 2017.

Meanwhile, the collection of levy to subsidise the RCS has come into effect from September 1, 2017. Any amount already paid by the airlines under this VGF will be adjusted against their accounts. The government had started charging a fee ranging from Rs 7,500 to Rs 8,500 from December 2016 in order to cross-subsidise flights to Tier II and Tier III cities under the RCS. However, the amount was revised to Rs 5,000 in May 2017. The government has decided to revise the airfare and the government subsidy to airlines under the RCS every three months. While airfares will be indexed to inflation, VGF will be decided after taking into consideration inflation, the cost of aviation turbine fuel (ATF) and the rupee-dollar exchange rates.

Other key recent government initiatives

  • The Directorate General of Civil Aviation has mandated that all aircraft registered in India from January 2019 onwards be suitably equipped with indigenous navigation system GAGAN (Global Positioning System Aided GEO Augmented Navigation).
  • The government has directed airlines to submit details of passengers on a flight taking off from India in a flat-file format to the customs department starting May 15, 2017, instead of the earlier format prescribed by the United Nations. The move will enable easier access to data among computer systems.
  • In a recent development, NITI Aayog has recommended that the government reduce the excise duty on ATF, in line with international levels, to bring down the high cost of flying. Currently, Indian carriers pay an excise duty of 14 per cent and a value added tax ranging from 5 per cent to 30 per cent on ATF. Thus, the total effective tax on the fuel is between 19 per cent and 44 per cent, which is one of the highest globally.
  • The government increased airport charges at all Airports Authority of India-operated non-major metro airports by 5 per cent per annum, starting April 1, 2017. Accordingly, the passenger service fee, which is charged as a part of the airfare, will increase from Rs 85 per passenger earlier to Rs 89 in 2017-18 to Rs 93 in 2018-19 and Rs 98 in 2019-20.
  • Further, the MoCA has done away with the practice of Indians having to fill departure cards at international airports, effective July 1, 2017, in a bid to reduce the time required to complete immigration-related formalities by passengers and enable airports and the authorities concerned to cater to a larger number of people.
  • The MoCA is planning to make it mandatory for passengers to have a unique identification (ID) while making air ticket bookings. Accordingly, unique IDs such as PAN, Aadhaar or passport details may be required during booking. In this regard, the MoCA has established a digital traveller working group to provide suggestions on implementing the scheme. The group is expected to come out with a white paper soon and the norms will be finalised subsequently.
  • The Central Industrial Security Force has abolished the practice of tagging and stamping domestic passengers’ hand baggage at 17 Indian airports. These include Delhi, Mumbai, Kolkata, Bengaluru, Hyderabad, Ahmedabad, Coimbatore, Calicut, Indore and Vadodara airports.
  • In the past one year, bilateral agreements in civil aviation cooperation were signed with several countries including New Zealand, Mozambique, Greece, Sri Lanka, Finland, Spain, Jamaica, Guyana and the Czech Republic.

Conclusion

The introduction of the NCAP, 2016, has brought a sense of optimism and has given a new direction to the sector. Although the real impact of the policy will require two-three years to show, the introduction of the RCS shows swift action on the part of the government. Further, other initiatives also indicate that a user-friendly and pocket-friendly environment is being created to encourage greater use of this mode of transport. Going forward, policy execution will be the key to sector growth. The creation of implementation task forces; roll-out of rules, procedures and amendments; close cooperation between government and industry; regulation of ATF prices; and process-driven implementation should be key areas of focus.