A draft National Civil Aviation Policy could assist Indian aviation’s support for the country’s economic growth but improvements must be made

Transformational thinking is vital if Indian aviation is to successfully meet the demands of 367 million travelers by 2034, as predicted by IATA.

A draft National Civil Aviation Policy (NCAP) released by The Ministry of Civil Aviation (MoCA) is a positive move. “The ministry has to be lauded for having published a comprehensive draft aviation policy that is designed to tackle the common bottlenecks stifling the growth of Indian aviation,” says Phee Teik Yeoh, Chief Executive Officer (CEO) of Indian airline, Vistara. “The government is taking a consultative approach and interacting with all stakeholders, including the airlines, to come up with the best solutions that would propel Indian aviation to become third largest market in the world.

“With the right policies and regulations set by the government, India stands to benefit from an aviation market that is ruled by market forces,” he continues. “The new civil aviation policy draft reflects a more liberal regime and a pro-growth approach.”

Smarter regulation

Under the draft policy, airlines will be able to enter codeshares without MoCA approval. Another proposal in the NCAP would see a zero-rating for service tax on maintenance, repair and overhaul (MRO) services, increasing India’s potential as an MRO hub. The promotion of sustainable aviation and a clearer ground handling policy, which would give airlines the right to self-handle, are also included.  Also part of the NCAP is the aspiration to adopt global best practice in passenger handling and security. Some work will need to be done to make this a reality in adopting the Fast Travel technology solutions that passengers now expect. Mobile boarding passes can’t be accepted in India, for example, as a prevailing law states that boarding passes must be stamped.

Overall though, Amitabh Khosla, IATA’s Country Director for India, concurs that, “the stated policy objective is to expand India’s aviation market further and to address the challenges faced by the industry and the broader aviation ecosystem in India.”

He warns, however, that several gaps must be closed for the NCAP to create an environment in which the air transport sector can maximize its contribution to India’s growth and development.

“While IATA has welcomed the intent of the draft Civil Aviation Policy, there are certain aspects of the NCAP that IATA believes may result in unintended consequences and further complicate the regulatory environment for aviation in India,” he says. “The NCAP isn’t fully aligned with global standards and doesn’t always follow such smarter regulation principles as full consultation and a proportional approach.”

New provisions

Chief among the “aspects” mentioned by Khosla, is the auctioning of traffic rights, a totally new provision mentioned in the policy, but not backed by any details or framework. This would apply to new services operating within 5,000 kilometres of the capital, New Delhi, and a successful bid would grant a license for three years.

Ujjwal Dey, Associate Director of the Federation of Indian Airlines, an association for domestic Indian scheduled carriers, says simply that, “it should not be allowed,” as, “no other country in the world auctions its sovereign rights.”

This proposal is the polar opposite of accepted global practice and seems little more than a revenue generation exercise by the government. It comes complete with a host of unintended consequences. Higher fares, market distortion and the loss of flexibility in dealing with consumer demand are all potential problems.  

Entwined in this is the looming abolition of the so-called 5/20 rule, which says that an Indian carrier must have been operating for five years and have at least 20 aircraft in its fleet before it can apply to fly internationally. This unique approach has been established for some time in India—so carriers have invested and planned their growth in line with its provisions.

Ironically, abolishing it after several years raises concerns even among those who originally opposed it. “It’s a great example of the importance of consultation in the development of regulations,” says Khosla. “Everybody stands to benefit by stopping bad ideas before they become entrenched. But, after money has been invested to comply, the situation becomes much more complicated to remedy fairly.”

Dey insists that the draft NCAP, “creates an unfair playing field by asking existing airlines to continue to follow the route dispersal guidelines and exempting new airlines from this obligation.”

Then there is the Regional Connectivity Scheme. The basic intent to improve regional connectivity is appreciated, but the scheme carries a 2% levy on air tickets. This includes international tickets—in direct contradiction of Article 15 of the Chicago Convention.

The associated Regional Connectivity Fund (RCF), into which the 2% levy is payable, is an opaque construction. If there is to be a charge, it should at least be related to cost and this cost should be transparent and available for audit. As it stands, the RCF would in effect become yet another Indian aviation tax, of which there are far too many already.

Successful oversight

The infrastructure provisions of the draft policy are also open to question, as is infrastructure in general.

The Airport Economic Regulatory Authority (AERA) would have its powers weakened by the NCAP and “hybrid till” airports—where non-aeronautical and aeronautical revenue are partially separated to determine airport charges—would become the norm. IATA advocates for single till models, stressing that any revenues earned by an airport are invariably a result of the consumers that airlines attract to the facility.

AERA has been reasonably successful in its oversight to date, proposing, for example a 78% reduction in charges at Delhi Airport compared with the previous 340% hike, approved before AERA was set up.

But, in general, airport charges are rising, especially at some of the public-private partnership greenfield facilities. IATA’s Chief Economist, Brian Pearce, explains this is, “because of the way concessions have been set up with large royalties being paid.”

At least these airports provide desperately needed airport capacity. Space is at a premium at Mumbai, India’s economic heartland. Khosla says, “there is also a need to fast track the process of development of the Navi Mumbai airport project,” if airlines are to continue supporting India’s economic development to the full.

Bottlenecks at an airport are often reflected in the journey to get there in the first place. Many gateways are some distance from the city center along congested roads. Journeys and processes on the ground are often longer than the actual flight.

As for air navigation, the draft policy would mandate aircraft use of a particular type of technology—known as the satellite-based augmentation system (SBAS)—that would bring no operational benefits beyond the existing avionics. The SBAS stipulation would therefore just add cost.

And though India has made remarkable progress in many areas of air navigation, there are other aspects that would benefit from additional impetus, such as the implementation of approach procedures at instrument runways.

NCAP signpost

Indian aviation, it seems, stands at a crossroads and the NCAP will be the clearest signpost about which way it is heading. Getting it right is essential not just for aviation but also for India’s economic growth.

“Only a handful of countries have formalized a national aviation policy,” IATA’s Director General and CEO, Tony Tyler points out. “India is thinking within the right strategic framework to develop a comprehensive approach to aviation that can maximize its contribution to India’s overall development.

”It is critically important to get it right. We have major concerns over the proposed policy. But, we are keen to engage the government to find win-win solutions that strengthen the Indian economy, comply with global standards, support the sector’s successful growth, and generate benefit to passengers.”

Indian companies are heavily reliant on air connectivity and India’s economic future and social development is therefore closely tied up with the fortunes of the aviation industry.

In the past, the future of Indian aviation  has not looked too bright. The failure of Kingfisher and the well-documented trials and tribulations of the Air India and Indian Airlines merger generated many a dark cloud on the horizon for a geographically vast and populous nation that needs aviation.

But, the latest airline figures are more promising and the outlook for the country’s aviation growth in the medium term is positive [see infographics]. Passenger growth, counted in the Indian unit of Lakhs, which is a unit of one hundred thousand, is seeing double-digit year-on-year increases, and the country’s airlines’ load factors are high.

Yet Indian aviation remains constrained by what Khosla says is, “the excessive regulatory burden for airlines...[which] manifests itself in weak airline finances in general for Indian carriers.”

He adds: “India needs to work towards reducing the regulatory burden on the airline industry by withdrawing excessive and counter-productive taxation—service tax on airline tickets and on landing and parking, as an example.”

But, as Yeoh points out, a positive momentum is building. “We strongly feel that by putting forward [the draft policy], the government has certainly shown the right intention as they want to introduce a more accountable and responsible system within the industry and we are in complete support of the plan.

“We look forward to the government setting actionable goals for achieving the desired milestones set in the policy,” he concludes.

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