New Delhi: An upset industry can make life tough for policy makers in any sector and India’s civil aviation sector is no different. Historically, this sector has seen intense lobbying by powerful private airline promoters, who have successfully managed to get many policy decisions tweaked to suit their needs.
The ridiculous 5/20 restriction, which bars new airlines from flying abroad unless they have operated locally for five years and have a fleet of 20 aircraft, is one such decision. Now, as the government has finalised major changes in the sector’s operations and signals its desire to correct some historical wrongs through a Civil Aviation Policy, unprecedented lobbying by the industry players has been delaying the policy for months.
On Wednesday, Civil Aviation Secretary R N Choubey said the draft policy should be sent to the Union Cabinet in the next two weeks. This is the umpteenth time that the roll-out of the policy has been delayed, in this instance by at least two months as the Ministry of Civil Aviation had earlier planned to seek the Cabinet approval in March so that it could implement various aspects of the policy including the regional air connectivity scheme (RCS) from April 1, when the new fiscal year started.
Instead of going into the merits of what the airlines want or objections of other stakeholders to various clauses in the policy, let us propose a breakup of the policy. Let the Regional connectivity Scheme (RCS), contours of which have been explained in the draft policy, get Cabinet approval as the industry and various ministries spar over other clauses of the draft policy. While removal or dilution of 5/20 or even auction of unused bilateral is not going to have an immediate impact on Indian flyers, RCS may turn out to be a game changer as far as connecting India’s hinterland is concerned.
If the civil aviation industry (specially airlines) is so cut up about the proposed scrapping of the 5/20 rule, proposed auctioning of unused bilateral rights, changes in ground handling norms etc, let the portion on regional connectivity at least get implemented. The policy draft contains a sizeable portion about ways to enhance regional connectivity with the launch of a new category of airlines. This one makes eminent policy sense, even if its implementation could pose some challenges due to a proposal to cap fares at regional routes.
The RCS proposal in the draft policy seeks to promote regional air connectivity by the Centre and states providing subsidies to airlines which are able to cap their fares at Rs 2,500 per hour of flying. The Centre will bear 80 percent of the cost of the subsidy, and the states will chip in with the remaining 20 percent to promote connectivity on routes which are presently unviable for airlines. The proposal also suggests creation of Schedule Commuter Airline category for airlines which wish to fly on regional routes.
Ministry officials have been dismissive of any criticism on the policy getting delayed. One senior official said earlier this week that “There are 55 Ministries at the Centre and 22 items which the policy addresses. We probably overestimated our ability to be able to bring all the Ministries on board in a short period of time.” So why not get the RCS part through, while stakeholders and the government machinery argues over the 21 other items proposed?
Choubey said “In anticipation of the Cabinet giving its approval to the RCS scheme the Ministry is fine tuning it. If we are able to get the approval of the Cabinet for the policy in the early part of next month it should be possible for us to roll out RCS immediately. If there are any changes which the Cabinet suggests we can incorporate them.”
The RCS scheme may get a fillip if the ministry’s subsequent proposal, about offering cheaper jet fuel to airlines at regional airports through lower Central excise and states taxes, also gets a nod. Air India has already embarked on regional connectivity without waiting for the policy to be in place. It has decided to induct more aircraft to expand its regional reach as state governments are willing to pay the national carrier for connecting their cities with the rest of the country.
Chhatisgarh, Maharashtra, Puducherry have offered financial support to the airline in the form of viability gap funding for operating on unprofitable routes, while many more states, including Uttar Pradesh, are willing to offer a bevy of sops, including a concessional one per cent value-added tax rate on Aviation Turbine Fuel (against 4% at present). Air India’s subsidiary Alliance Air, created in 1996 to focus on regional routes, will expand its fleet of 70-seater ATR 72-600 to 18 by March next year from five at present.“ As for the airlines’ grouse about 5/20, bilateral rights’ auction, it is clear that the matter is creating major fault lines.
The promoter of an LCC airline said last week there was every possibility of the policy being dragged to courts. “This is a decision the FIA (Federation of Indian Airlines, a lobby group of private airlines) will take but my sense is this policy will be challenged in courts. Which country auctions unused bilateral rights? The CEO of a Gulf airline was in Indian recently and he wondered why India would want to auction its sovereign rights when no other country does such a thing”.
He was obviously also annoyed about a proposed dilution in the 5/20 clause, saying the government should heed protests of private airlines who have been operating with this restriction for years.
Another industry veteran said “every comma and full stop” has been checked as far as policy is concerned and it should be sent to the Cabinet very soon. He dismissed fears of the policy landing up in courts, saying courts are not really empowered to take a call on every policy decision of the government.
Updated Date: May 26, 2016 15:19 PM