Indian Aviation Ruined by Policy Interventions

  • For Indian Aviation, the biggest problem has been the taxes imposed on Aviation Turbine Fuel (ATF),
  • The government must bring ATF under GST for growth to materialize,
  • Extra, out-of-the-box, policy measures needed to realize the full potential of Indian Aviation.

Today, as the vaccination movement is gathering some speed, people have started to travel. And so, it appears that the Indian aviation will soon get back to a recovery path. For more than 300 days, it was under a huge stress like the rest of the economy.

Aviation did suffer the most of the damages attributed to the pandemic. In all fairness, it can also be stated that certain policy matters, and some short-sighted measures undertaken by the airlines added to those damages.

Prior to the pandemic, India saw an overwhelming growth in traffic volumes. It rose from 44 million in 2008 to a phenomenal 136 million in in 11-year period. Various forecasts pointed towards India becoming the third biggest aviation market in the next ten years. The chief factors of this growth were, and still are, the population growth, a growing middle class, a trend towards more economic activities, tourism coupled with a significant capacity entering into the Indian civil aviation.

Having said that, the government, its policies and the agencies under it did too little to sustain aviation.

Airlines

The government did try some course correction since 2016-17 like the launch of UDAN-RCS. Other major policy initiatives in recent past have been:

  • Let India enter the aircraft leasing market,
  • The Air India sale,
  • Amendments to Foreign Direct Investment (FDI) rules,
  • Tax revisions on Maintenance Repair and Overhaul (MRO),
  • Change in the bidding parameters for airports,
  • Let all airports be like Cochin International Airport (CIAL) which does not have to pay electricity bills, and
  • Setting up of flying training organizations and addressing their issues.

A few years ago, such steps were nowhere in the government’s radar. However, these steps have helped Indian aviation only slightly, because in the entire system of aviation every factor needs to be consistent with the rest of the other elements. For instance, if you ease FDI norms and do not ease the taxes on ATF, then whatever is being done has only cosmetic value. In the case of Indian aviation, there is a lot more to be done:

  • The man-made problem – the admin part. Key offices under aviation ministry do not observe 24/7 discipline, while all others – fliers, airlines, MROs, security and travel agents – have to necessarily go through 24/7/365 routine,
  • Vacancies persist, manpower shortage. It is an irony that the manpower didn’t grow as exponentially as the number of fliers. One man handles more than one charge,
  • The slow pace of infrastructure development, and
  • Optimum utilization of resources.

Also Read: Many airlines try to boost domestic and international flights

Indian Aviation Industry

Going forward, identification of key productive areas should be the resort of first measure. Two basic areas in this context need special mention. One, the non-aeronautical revenue and, two, linking real-estate benefits with the aviation stakeholders. Though these have technically no relation with an aircraft operation, but have a significant cushion to sustain aviation.

Had there been a proper policy in place, the Indian aviation would not have been ruined. This should have been a top policy priority. Only a mechanism run by the government can address this issue. Thus, oddly enough, the gains accrued to the real estate sector (in the vicinity of an airport) are not passed on to the aviation sector. Only a far-sighted, smartly drafted policy could have resolved this situation. Strangely, the cost of overruns seen by airports are passed on to the unassuming flier.

Rather, India, even today, is one country in the world that ridiculously levies both an Airport Development Fee (ADF) and a User Development Fee (UDF).

Also Read: Post Air India Express incident in Mangalore, DGCA finds safety lapses at Calicut airport

For Indian aviation, the only and the biggest pain has so far been the taxes and duties imposed on ATF. And the government, aware of this fact, has not undertaken any policy initiative which can help bring ATF under GST. The government imposes taxes on ATF like a luxury but treats it as a commodity.

Looking through a financer’s lens, presently the cash-flows for aviation are indifferent, the need for collateral is a must, and chances of more equity infusions are unlikely in near term. Most banks treat aviation as negative. Disoriented policy measures further magnify this challenge.

To leverage the growth of Indian Aviation, policy interventions are very important — interventions that instead of distorting the sector, bring about keen investors’ interest and make Indian Aviation thrive.

Also Read: HC seeks Centre’s reply on plea against DGCA on cabin crew’s duty time

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