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Civil Aviation New Policy to Boost Economy

Brij Bhardwaj

The new aviation policy marks major milestone in development of aviation in the country as this sector will no longer be treated as a luxury, but become an essential part of effort to connect remote and small towns of India with State capitals and national capital. As a policy transport sector including Railways and road transport have received subsidy from State and Central Governments. Under the new regime for the first time some concessions will also be extended to aviation sector to link small cities, remote areas and places of tourist interest.

It may be mentioned that air connectivity is essential for development of tourism which is accepted as a major multiplier of economy and job creation world over. India with its diversity and places of historical and cultural interest can get a big boost in tourist traffic if infrastructure in terms of hotels and air connectivity is improved.

In olden days aviation was a state monopoly and growth was restricted because of curbs on capacity. An attempt was made to open up the sector by allowing private players, but many of them failed because of inadequate capital and restrictions imposed on the sector in terms of routes on which they could fly and high cost of fuel which forms 40 to 45 per cent of total cost of flying. There were also restrictions on import of planes, spares and flying to foreign destinations which could be profitable.

The new policy addresses many of these issues like providing incentives in terms of airport charges to fly to small towns or places of tourist interest and subsidy for fuel. There is need on the part of States to play their role by reducing sales tax on fuel and encouraging travel by air by staff and others so that flights become viable. A hub and scope system can go a long way in development of aviation sector in India.

For small cities we need planes which require minimum ground support and can become viable because of limited capacity. It has to be a frugal operation with pilot alone   without any air - hostess or support staff. Such operations are very popular in United States of America and Australia. If a correct model is adopted it could be a boon for regions like North East and hill States. We have over 100 air strips which can be developed as airports for such operations. The final push can come if India starts manufacturing aircrafts and becomes a center for training pilots, crew and engineering staff for maintenance.   

After the 'Age of the Metros', India is entering the 'Age of Flying'.

The National Civil Aviation Policy (NCAP), announced last week, aims to take flying to the masses by making it affordable and convenient. But can India be America where people just hop on to planes like we take buses and trains for nearby towns and cities? The vision of the new policy is very clear, but the mission needs fog lights on if it has to fly high.

There is a sky high potential for the development and progress of the domestic aviation sector with a 300-million strong middle class who wants to fly if air travel is cheaper. It is this section of people the government wants to tap by investing in the development of 50 no-frills airports in small cities and keeping air fares at Rs 2,500 an hour. If the operating cost is more than that earned through tickets, the Centre will provide the difference in the form of 8o percent subsidy called the viability gap funding (VGF) and the remaining 20 per cent should comes from the States.

And here is the catch while the Centre will provide VGF for the success of the regional connectivity scheme (RCS), the States will have to give tax sops in the form of lower excise duty at 2 per cent and VAT at 1 per cent on the aviation turbine fuel (ATF) picked up at RCS airports. The big question is whether the States will be willing to forgo revenue in terms of high VAT on aviation fuel, which ranges from 4 per cent to 30 per cent?

In the past, there have been efforts by the Centre to bring down the VAT considerably, but consensus has eluded it. This time also it is a tall order. Also, the VGP will be met by levying a cess on flyers travelling to big cities. Though it is said to be a small levy, many experts feel it will discourage flyers in big cities.

There has been a good suggestion for the States to make up for the loss in revenues in terms of VAT and excise duty forgone. They can encourage State officials to fly short distances. It will definitely save lot of precious time and the journey will be smooth and not expensive, too.

It has also been seen that setting up regional airports is not an easy job. Airports in Meerut, Moradabad, Faizabad and Agra were cleared during his tenure, but have not seen the light of day till yet.

The new policy, in order to encourage more airlines to operate, has also done away with the contentious 5/20 rule. The airlines now need not have to wait for five years to fly overseas. But the insistence on deploying 20 aircraft or 20 per cent of total capacity on domestic routes may result in delay of this part of the policy. Many experts say acquiring 20 aircraft takes 4 -5 years at least.

For the success of the new aviation policy, what is most required is the development of Maintenance Repair & Overhaul, a Rs 5,000 crore business. At present, Indian carriers, with the exception of Air India, send their aircraft to places such as Singapore, Sri Lanka and Dubai, for major maintenance. To help small airlines, MROs have to develop in a big way in various parts of the country. The States should be encouraged to set up MROs. They should be persuaded not to levy VAT on such activities. More efforts should be made by the Centre to promote MROs.

For increased regional connectivity, the new policy is also encouraging helicopter operations. But environmental clearances can pose a big challenge for helipad development. Here the environment ministry should be brought on board. The Centre should also address the growth in air, land and regulatory infrastructure required to meet the phenomenal growth in future. We want to fly high, every Indian wants to.


(The author is a senior Journalist. Views expressed are personal. Email: brj.bhardwaj@gmail.com)