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Civil Aviation Policy

  • to boost the domestic aviation sector and provide passenger-friendly fares.
  • The Policy aims at

    • Aim is to establish an integrated eco-system which will lead to significant growth of the civil aviation sector to promote tourism, employment and balanced regional growth
  • Potential of the Civil Aviation Sector

    • India to become 3rd largest civil aviation market by 2022 from 9th.
    • Domestic ticketing to grow from 8 crores in 2015 to 30 crore by 2022. To grow domestic passenger traffic nearly four-fold to 300 million by 2022.
    • Airports having scheduled commercial flights to increase from 77 in 2016 to 127 by 2019
    • Cargo volumes to increase by 4 times to 10 million tonnes by 2027.
    • Enhancing ease of doing business through deregulation, simplified procedures and e-governance.
    • Promoting ‘Make In India’ in Civil Aviation Sector.
    • Ensuring availability of quality certified 3.3 lakh skilled personnel by 2025.
    • Development of this sector has a multiplier effect on the economy
    • International Civil Aviation Organisation (ICAO) study, the output multiplier and employment multiplier are 3.25 and 6.10 respectively.
    • can generate additional revenues for the government through allied activities such as MRO operations (severely underdeveloped), cargo carriage (less polluting and more efficient both cost and time wise than road transport) etc
  • Highlights of NCAP
  • cornerstones

    • competition
    • consumers
    • connectivity (within India and with the rest of the world)
    • investment: – both from domestic and foreign investor
  • Regional Connectivity Scheme

    • Capping of fare: Rs 1,200 for 30 minutes and Rs 2,500 for hour-long flights.
    • Revival of airstrips/airports as No-Frills Airports at an indicative cost of Rs.50 crore to Rs100 crore
    • Purpose is to boost airlines flying to hitherto underserved/uneconomical/hinterland routes
    • Viability Gap Funding to airline operators
      • Centre and state will bear the burden in the ratio of 80:20.
  • Route Dispersal Guidelines (RDG)

    • MoCA will categorise the air traffic routes into 3 category
  • 5/20 Abolished

    • Replaced with a scheme which provides a level playing field
    • All airlines can now commence international operations provided that they deploy 20 aircraft or 20% of total capacity, whichever is higher for domestic operations
  • Bilateral Traffic Rights

    • GoI will enter into ‘Open Sky’ ASA on a reciprocal basis with SAARC countries and countries located beyond 5000 km from Delhi. i.e., these countries will have unlimited access, in terms of the number of flights and seats, to Indian airports, leading to increased flight frequencies with these countries.
    • For countries within 5000 km radius, where the Indian carriers have not utilised 80% of their capacity entitlements but foreign carriers /countries have utilised their bilateral rights, a method will be recommended by a Committee headed by Cabinet Secretary for the allotment of additional capacity entitlements
  • Ease of doing business

    • A single window for all aviation related transactions, complaints, etc
    • government plans to liberalise regime of regional flights.
    • Permission for Indian carriers to get into code sharing agreement with foreign carriers to any destination within India.
    •  earlier proposed 2% cess on all regional flights has been done away with. The cess was proposed to collect funds to improve regional infrastructure
  • Infrastructure development

    • Restoration of air strips at a maximum cost of Rs 50 crore through Airports Authority of India (AAI).
    • Four Heli-hubs to be developed. Helicopter Emergency Medical Services to be facilitated
    • Development of Greenfield and Brownfield airports by State government, private sector or in PPP mode to be encouraged.
    • Future tariffs at all airports will be calculated on a ‘hybrid till’ basis
      • There are three methods for calculating airport tariff – single till, double-till and hybrid-till.
      • In the single-till model both, aeronautical and non-aeronautical charges of airport operators are taken into account for fixing landing and parking charges.
      • In the double-till model, aeronautical charges are calculated taking into account revenues from aeronautical and non-aeronautical charges on the basis of collections from non-aeronautical.
      • In the hybrid till model, the charges are calculated by taking all the aeronautical and 30 per cent of the non-aeronautical revenue into account.
    • Strategic partnership between Ministry of Skill Development and Entrepreneurship and Ministry of Civil Aviation to boost skill initiatives in the aviation sector.
  • Maintenance Repair and Overhaul operations

    – The MRO business of Indian carriers is around Rs 5000 Cr, 90% of which is currently spent outside India. In the budget for 2016-17, customs duty has been rationalised and the procedure for clearance of goods simplified. Further incentives proposed in the policy to give a push to this sector

  • Aviation Education and Skill Building

    •  All training in the non-licensed category will conform to National Skill Qualification Framework standards.
  • Pros:

    • At a time when most of the airlines are not posting a profit and reeling under the burden of high taxes, 5/20 scheme proved to be a major impediment in enabling airlines to boost profits by initiating foreign operations.
    • The move has been criticized by established players like Jet Airways who are wary of increased competition.
    • initiative in the policy to boost MRO business is commendable as it leads to substantial loss of revenue for India.
    • regional Connectivity Scheme has been mooted with an objective of promoting connectivity in Tier 2, Tier 3 cities
    • Open sky policy will enhance competition leading to better service and cost effectiveness  
  • Shortcomings in the new policy

    • Structural reforms ignored
      •  no direction on improving institutional capability in the Ministry of Civil Aviation.
      • doesn’t provide the civil aviation sector with the institutional infrastructure required for long-term growth.
      • no direction for professionalizing the Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security (BACS), independent Civil Aviation Authority (CAA). Airports Authority of India (AAI)
  • Other shortcomings
    • Rs 2,500 for a one-hour flight ticket – and subsidising private airlines in case the ticket prices exceed this per-determined rate. Arbitrary price curbs and bureaucratic interference in the affairs of private airlines may lead to rent-seeking.
    • NCAP remains silent on increasing Foreign Direct Investment (FDI) in Airlines.
    • Scrapping away 5/20 rule may not help new carriers like Vistara and AirAsia India significantly as they cannot fast track expansion owing to a resource crunch
    • The helicopter industry will structurally change with the announced measures, but its success is dependent almost entirely on DGCA, BCAS and infrastructure development.
  • Cons Regional Connectivity Scheme
    • Vgf would result in additional subsidy burden at a time when economic survey argued in favour of removing subsidies for the rich
    • Capping of fares (1200 for half hour, 2500 for an hour) is criticized as airlines argue that it should be a function of demand/supply
    • The Open sky policy with SAARC countries is a good measure. However, the one with countries beyond 5000km radius will fail to have much impact as India already has unused flying rights to EU, open sky policy with US and UK
  •  Hybrid Till model for deciding on airport charges
    • According to International Air Transport Association (IATA), the approved policy states that “future tariffs at all airports will be calculated on a hybrid-till basis” – which can make air travel more expensive
    • Single Till model is considered to be more effective for airlines as airport charges constitute around 14% of the total operational cost of a passenger carrier.

Assessment of Increasing FDI in Airlines Sector to 100%

  • Increasing the FDI limit for airlines (including regional operators for whom FDI of 49 per cent was only allowed last November) to 100 per cent, with automatic approvals for foreign ownership up to 49 per cent, sounds good on the face of it. 
  • depite 100% FDI being allowed, securing a scheduled operator permit still requires an airline’s chairman and at at least two-thirds of its directors to be Indian citizens, and substantial ownership and effective control to be vested in Indian nationals. It then begs the question why would a foreign airline invest so much in a JV when it can have very limited management control.
  • India can follow the Australia Model
    • Australia has now scrapped limits on airline ownership for aircraft flying within its airspace — a model that could very well serve India’s aviation policy objectives of tripling passenger traffic by 2022 and developing regional connectivity. To stay at the forefront of FDI reforms in a slowing global economy, India could have proposed a bolder reform in airline ownership norms and dovetailed that with its vision of an open sky policy within the SAARC region and beyond. That would have been a global game changer.