IASbaba’s Daily Current Affairs – 16th June, 2016

IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs June 2015, National, UPSC

IASbaba’s Daily Current Affairs – 16th June, 2016

ECONOMY

TOPIC:

General studies 3:

Economic Development– Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
Investment models.

General studies 2:

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

New civil aviation policy: An Analysis

The Union cabinet has cleared the new civil aviation policy that aims to propel growth and allow new airlines to fly abroad

The new policy is seen as a development that will boost demand for the aviation sector in the long run. But, on some counts, the policy falls short.

What the new aviation policy provides? : An Analysis

The cornerstones of the new civil aviation policy are competition, consumers, connectivity (within India and with the rest of the world) and investment—both from domestic and foreign investors.

The government is convinced that this will be the key to realizing its target of growing domestic passenger traffic nearly four-fold to 300 million by 2022.

5/20 rule – diluted:

The 5/20 rule has been diluted, but not done away with entirely.
For domestic airlines to start international operations, the 5/20 rule required it to serve the local market for five years and operate at least 20 aircraft
Now, airlines can start international operations if
they deploy 20 aircraft for domestic operations

(or)

20% of total capacity (average number of seats on all departures put together), whichever is higher, for domestic operations.

(Only, the number of years is done away with.)

The new rule will hurt old airlines companies such as Jet Airways (India) Ltd, SpiceJet Ltd and InterGlobe Aviation Ltd (IndiGo)
This move may increase competition in the global scenario.
New entrants such as Vistara and AirAsia, in both of which the Tata group has a majority stake, may get benefitted.

Regional Connectivity Scheme:

The policy enables Indians to fly at 2,500 per hour under the Regional Connectivity Scheme at unserved airports. (i.e. @ subsidized rates)
Small levy per departure on some domestic routes to fund the Viability Gap Fund (In other words, the subsidized amount/funds will be generated by charging a small cess on other domestic flights)
But, it would have been better if this fare was linked to some cost elements of airlines, for example, the ATF (aviation turbine fuel) prices.
All airlines are currently also asked to place a certain percentage of their metro flights on routes which are remote and, in some cases, not as profitable. (i.e. airlines will have to rearrange their networks by the winter of 2017) – very challenging and problematic task

More No-frills and Green-field Airports:

Some airstrips/airports that are being used for cattle grazing and date back to the World War era will be developed as no-frills airports at an indicative cost of Rs.50-100 crore and could host such flights

Open Sky Agreement with SAARC countries:

The policy will also allow a open skies agreement on a reciprocal basis with India’s fellow-members in the South Asian Association for Regional Cooperation (Saarc) and countries located beyond 5,000km from Delhi.
An open skies agreement means airlines from two countries can operate an unlimited number of flights to each other.
The 5,000km area excludes countries in West Asia which have become hubs taking traffic from India via their airports to the US and Europe, among other regions.

Ground Handling operations:

In its new policy, the ministry also allowed airlines to handle ground operations themselves.
Ground handling is critical to maintaining operational sanctity, especially for low-cost airlines such as IndiGo and SpiceJet that bank on faster aircraft turnaround time on ground to bolster profits.

What the new policy fails to provide?

Silent on FDI:

The policy remains silent on foreign direct investment (FDI)
Airports, cargo, MRO (maintenance, repair and overhaul) and general aviation – most of these have been opened up to 74% to 100% FDI.
However, airlines have been not opened much (Reason – threat to national security)
100% Foreign Direct Investment (FDI) is permitted for Greenfield airport projects under the automatic route.
Up to 49% FDI is permitted in domestic scheduled passenger airlines under the automatic route.

Silent on formation of an independent civil aviation authority and the fate of Air India:

The policy also remains silent on issues such as formation of an independent civil aviation authority and the fate of Air India.

Courtesy (image)- http://www.livemint.com/r/LiveMint/Period2/2016/06/16/Photos/Processed/w_airlines.jpg

Connecting the dots:

Will the New Civil Aviation Policy realize its target of growing domestic passenger traffic nearly four-fold to 300 million by 2022? Critically Analyze.

NATIONAL

TOPIC:

General Studies 2:

Government policies and interventions for development in various sectors and issues arising out of their design and implementation

General Studies 3:

Infrastructure: Energy, Ports, Roads, Airports, Railways, etc.

Towards better Trade Regime—Road Infrastructure

An unfinished Job

Creation of a seamless internal market in India requires—

Goods and services tax (GST): Removing barriers to interstate trade
Provision of physical infrastructure: Allowing goods to move across the country efficiently

(We shall focus on the development of road infrastructure in this article)

Indian Initiatives at building physical infrastructures—

Network of 27 road corridors— ‘Bharatmala’

Will connect 12 major ports and cities with populations of more than 45 million and 26 state capitals
Linking of highways at every 250km

Why is the ‘Road Infrastructure’ gaining prominence?

Roads form vital links between markets that are not connected— India has set itself the target of awarding 25,000km of road projects in 2016-17 under the ministry of road transport and highways and the National Highways Authority of India, compared to the 10,000km awarded in 2015-16.

Linking producers to distant markets
Promoting economic specialization
Establishing linkages with other parts of the economy
Generating positive externalities
Interstate trade—
- In India, the interstate trade is less than 15% of gross domestic product
- US and China: 40% and 35%, respectively

Challenges faced to effectively leverage Interstate Trade:

McKinsey estimate: Around 13% of GDP is compromised by the following logistical lacunae in India compared to 7-8% in developed economies

High transaction costs— Physical and legal infrastructure problems as well as in terms of money and time
Slow growth rate of road development
Disproportionate burden of freight on roads
Negative WPI and traffic underperformance
Time costs on interstate road freight via interstate checkpoints: Incurs costs of $14.7 billion and $6.6 billion annually due to additional fuel consumption costs and transportation delays
Leads to lower freight volumes moved
India: Lowest average speeds for trucks and about 60% of their time is taken up at these checkpoints and tollgates
Producers become less competitive despite having competitive input prices
Rampant instances of Red tapism

Way Forward:

Expansion of roadways
Simultaneous deployment of resources on alternative means of transport such as rails, inland waterways and air—The current road to rail ratio of 70:30 is inadequate and inefficient for economic as well as environmental reasons
Need to initiate building up a physical foundation by reducing transaction costs
Facilitating interstate trade via GST—
- To address the cascading effect of the present tax regime
- Broaden the tax base
- Increase compliance
- Reduce inter-state variations in taxes

Various initiatives taken by the Government—

With the National Highways Authority of India’s?(NHAI) standardized concession agreements and progressive policies being put in place, many overseas companies are finding it easier to invest in Indian infrastructure, including roads and logistics.
- I Squared Capital has committed to invest in road assets worth Rs 8,000 crore through Cube Highways and Infrastructure Pte Ltd—its toll road and transportation investment platform.
- Cube Highways is a joint venture between I Squared Capital and International Finance Corp. (IFC), the private investment arm of the World Bank.
- Elements: Wayside amenities, conversion of two of our roads to intelligent highways, improving the operating performance of highways significantly
The build, operate and transfer (BOT) projects hold great significance as the steady rise in traffic and toll collections recorded by many highway operators in the March quarter has improved investment sentiment in the sector where many companies are looking to monetize operational assets.
Formulation of the new hybrid annuity model (HAM) for roads construction to provide relief to the highway developers that are labouring under debt, and dealing with lower-than-expected cash flows on completed projects and issues related to land acquisition. The government under this model commits up to 40% of the project cost over time and hands the project to the developer to start road work, clearing the way for stranded road projects and reviving investments

Must Refer:

Connecting the Dots:

Examine the importance of better roads in promoting economic development and inclusive growth within the country

Refer (Water Transportation & related issues):

Inland waterways policy

Maritime India Summit 2016

Inland Water Transport (IWT) in India