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National Civil Aviation Policy, 2016: A Missed Opportunity

The National Civil Aviation Policy, 2016 entails the establishment of an eco-system that provides for secure, sustainable and affordable air travel coupled with cost-effective movement of cargo. Although as futuristic and as promising as it sounds, the policy does not underscore the resolution of myriad impediments that curb the growth of commercial aviation in India. The Indian aviation market is hyper-sensitive. Policy decisions are made to project a belief that anything that makes flying is expensive is bad although the logical effects of these decisions on the aviation market more often than not paint a diametrically opposite picture. For starters, the much-touted Regional Connectivity Scheme (RCS) that proposes the revival of world-war era airstrips and ghost airports (with no commercial operations) into fully operational airports and aims to provide affordable air travel for distances ranging from 500 to 600 km. The scheme seeks to fix the air fare around an average of INR 2500.  This is to be done through a Viability Gap Fund that will be financed by a levy of 2% on every passenger travelling on domestic trunk routes and also contributions from the central and state government in ratios of 80: 20. Although, the scheme also entails significant concessions for airlines in terms of landing, parking, aviation turbine fuel charges etc., one has to internalize the fact the Indian aviation market is not inelastic enough to handle such a levy without a negative effect on demand. Moreover, unlike the West, there is a paucity of cheaper, secondary airports in India especially in the major cities wherein smaller airlines can fly for cheaper fares. This has led to the monopolization of market power in the hands of major airports that charge steep tariffs from airlines, both big and small. Thus, airlines will have to inevitably pass the burden of the levy to the consumers by raising passenger fares to accommodate the same. On top of that, 31 airports built under the erstwhile UPA regime operate no flights despite a drain of taxpayer money to the tune of 600 crores on their construction. Thus, the government needs to import accountability in its RCS by operationalizing airports rather than reviving pre-Independence era airstrips. The harmful effects of cross-subsidization to invigorate passenger services is also evident in the financial conundrum the Indian Railways has become today. Instead, the RCS can be reworked into a hub and spoke system wherein airports serving as regional hubs should be augmented with better infrastructure and an increase in the frequency of commercial services while developing complementary road and rail networks to connect nearby areas with these hubs for better connectivity and operational efficiency.
Another significant issue is the tweaking of FDI rules to allow foreign entities to fully own domestic airlines although the stake held by a foreign airline in a domestic or local venture is still capped at 51%. However, the Ministry of Civil Aviation has found itself to be trapped in a complex web of rules and regulations as the substantial ownership and effective control (SOEC) of any Indian airline still needs to be in the hands of Indians in order to obtain an Air Operators Permit(AOP) as per the Aircraft Rules, 1937.  Moreover, India being signatory to agreements under the purview of the International Civil Aviation Organization can only grant international flying rights to those airlines which are substantially controlled by Indians. Essentially, these loopholes make the revised FDI norms largely infructuous. The government has put the issue of amending the Aircraft Rules, 1937 on the back burner after objections raised by the Federation of Indian Airlines (controlled by established Indian carriers such as Jet Airways, IndiGo, Spicejet etc.) who have raised national security concerns especially the dangers of granting foreign entities access to civil enclaves which are part of defense airfields. Herein, the government faces a conundrum wherein it has to balance national security concerns and the growth of the commercial aviation (especially international) through liberalization and application of principles of free trade. A better criterion to balance these competing interests can be to assess as to which country has administrative oversight over an a newly formed airline and its principal place of business rather than taking recourse to SOEC clauses. Moreover, the government should support those foreign airlines or entities that are committed to a long-term presence in India and seek to further infuse capital in other ancillary aviation industries such as maintaining maintenance, repair and overhaul facilities (MRO), tourism etc. that create more jobs. The policy also seeks to awards traffic rights to airlines interested in operating under RCS through auctioning. This move deviates from well-established global principles and can lead to monopolization of these rights in the hands of those airline operators who are established and already making money on trunk routes. It might discourage a lot of operators seeking to be regional players only. Thus, the issue of regional connectivity requires consultation and participation of various stakeholders in the aviation industry. India can further foster regional connectivity by importing benchmarks used by the commercial aviation industry in the EU and the US and which are considered to be quite robust and accommodating in general.  The relaxation of the 5/20 norm wherein an airline needs 20 aircraft and five years of domestic operation to start international services into a 0/20 rule wherein you only need to 20 aircraft to go international is also not well thought of because of the paucity of international commanders that have the requisite experience to ply on international routes. Moreover, the whole process of acquisition of new aircraft and achieving operational readiness is lengthy. Thus, a new airline can take at least 3-4 years to start international services. Moreover, many new airlines like Vistara and Air Asia India, whose promoters sit in other countries are not able to access the markets in those countries and might face backlash especially in terms of capital infusion from the same.
The policy has also failed to address pressing matters like the corporate revival of Air India and the draconian regulatory framework put forth by the Directorate General of Civil Aviation(DGCA).  In the present-day aviation market, the DGCA’s regulatory framework needs to be reworked. It is imperative for the DGCA to be detached from the Ministry of Civil Aviation and be made an independent regulatory body to nullify the conflict of interest which is created due to its functions of being a protector and promoter. The DGCA has been historically known to exploit its regulatory oversight to foist Air India despite it being under insurmountable burdens of debt and also isolate private airlines through unnecessary obligations.
Amidst the unrelenting problems in the policy, a shining star has been the decision to waive all royalties and value added taxes that airlines and other private entities have to pay to airports to establish MRO facilities. Owing to increasing fleet sizes and amount that airlines spent on MRO (close to $1 billion), removal of taxes can keep such an enormous portion of airline revenues within India as all MRO operations are currently outsourced and also give a fillip to MRO service provider to establish facilities in India that can create close to 50,000 jobs.
The aviation policy reflects the rhetorical problem that public policy faces in India i.e. the lack of institutions that harness inventiveness and create novel pathways through which knowledge can be applied in the formulation of public policy. As Shiv Viswanathan has correctly observed, “Our knowledge society does not differentiate between information and knowledge.”  Public policy circles in India have only been able to absorb existing information rather than create knowledge through critical thinking and recognize the uniqueness of Indian conditions in order to bring about economic revolution through policy decisions. The aviation policy only symbolizes a half-hearted effort to redress the evils that hold back growth of commercial aviation. While the aspirations and goals that the policy seeks to achieve may point towards the right path, it is devoid of concrete measures that make economic sense.  At every page, the bureaucrat has come up with numbers to justify regulations and targets. One has to ask whether these numbers really make sense or not? This is the crucial juncture wherein the aviation ministry needs to conduct rational self-analysis and encourage institutional creativity to concretize efforts that really make a difference and enable middle class populations residing in remote parts of India to fly or even undertake professional work in the realm of commercial aviation (as reflected in the vision of the aviation policy). Lastly, the bureaucracy and the polity need to abandon its ways of nebulously regulating the aviation industry through benchmarks, subsidies, viability funding etc. and adopt liberalization of rules and regulations and also the tax structure to allow new players a smooth entry into the market. Only then can aviation industry become robust enough to provide regional connectivity and undertake infrastructural growth while maintaining positive flows of revenue and also capture consumer satisfaction.

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ABOUT THE AUTHOR

 

Shivang Aggarwal is in final year of the B.A., LL.B. (Hons.) undergraduate course at NALSAR University of Law, Hyderabad, India. He is an avid reader and takes keen interest in international affairs and public policy. 

 

 

In Content Picture Credit: Urban Transport News

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