Braving several take-off woes, the aviation industry seems to have found relatively firm grounding. Privatisation has gripped the industry in a big way. Nevertheless, certain ground realities need to be effectively handled for a safer landing.
India´s civil aviation industry is on a high-growth trajectory. India, which is the ninth-largest civil aviation market in the world- with a market size of around $16 billion, aims to become the third-largest aviation market by 2020.
The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, foreign direct investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity.
In the second quarter of 2015, domestic air passenger traffic surged by 19.2 per cent to 20.3 million from 17 million in the corresponding period a year ago.
Until recently, AAI was the only major player involved in developing and upgrading airports in India. Post liberalisation, private sector participation in the sector has been increasing. Private sector investment is expected to increase to $9.3 billion during the Twelfth Five Year Plan from $5.5 billion in the previous plan.
The aviation sector is uniquely placed to achieve twin benefits from the ´Make in India´ campaign. Firstly, it will be a direct beneficiary as one of the 25 focus sectors and attract incremental capital and technology. This should help to further develop the aviation ecosystem in the country. Secondly, the aviation sector will benefit from more passengers undertaking air travel due to increased economic activity and GDP growth. Government agencies project that around 500 brownfield and greenfield airports would be required by 2020. The private sector is being encouraged to become actively involved in the construction of airports through different public private partnership models, with substantial state support in terms of financing, concessional land allotment, tax holidays and other incentives. With the withdrawal of exemption on service tax, consultancy, technical services or hiring of labour from contractors will now be taxable. The cost of constructing greenfield airports will therefore escalate, brownfield projects remaining unaffected.
The aviation sector needs immediate reforms in terms of reduction in jet fuel prices to international levels; zero-rating of taxes on aircraft maintenance, abolition of route dispersal guidelines (RDG) and the 5/20 Rule; creation of the Essential Air Services Fund (EASF), etc.
No-frills airports will need a realistic regional air connectivity policy. The MoCA Secretary at the Aviation Day event hinted that the government may create the regional connectivity fund (RCF) by levying a small charge on all air tickets. The RCF shall provide VGF to regional airlines flying to these low cost airports. Also, reduction of VAT on ATF is expected to improve the financials of airlines.
While PPP in airports has worked, we need to learn from past experience which can be incorporated for future privatisation projects. Apart from an overarching policy, the PPP model for airport development rests on two key pillarsû viable airport projects and economic regulation.
Most of the projects in the Indian infrastructure sector face the brunt of time and cost overruns. Projects in the execution and closure phase are affected by non-availability of funds, resources and delay in delivery of preceding activities. Land acquisition, MoEF clearance, financial closure, etc., are major bottlenecks in the sector which need to be effectively addressed.