Topic: General Studies 2,3:
- Government policies and interventions for development in various sectors
- Indian Economy and issues relating to planning, mobilization, of resources
Reforms In Civil Aviation Industr
Context: Due to the effects of the Covid contagion the world’s second oldest airline (Avianca) has already filed for bankruptcy protection
Significance of aviation sector in India
- Contributes to GDP: The Aviation sector in India currently contributes $72 bn to GDP
- Job creation: Indian aviation sector to employ 4 million by 2035
- Fast growing: India is now the 3rd largest- and fastest growing- aviation market in terms of domestic tickets sold.
- Potential for Investment: Government agencies projects requirement of around 250 brownfield and green-field airports by 2020
- Allied Sector Growth: Before COVID-19, Maintenance, Repair & Overhaul (MRO) industry was forecasted to grow at an expected 5 year CAGR of close to 10% by 2023
- Regional Connectivity: It boosts connectivity to smaller cities and north-eastern states
- Relaxed FDI policy: Up to 100% FDI is permitted in Non-scheduled air transport services, MRO, flying training institutes, helicopter services and seaplane services under the automatic route.
Challenges of Indian Aviation Sector
- Infrastructure deficit: unavailability of land to expand airports at their current sites, particularly in major cities
- High Fuel Costs: Fuel cost as a percentage of operating charges amounts to 45% in India as compared to the global average of 30 per cent.
- Procedural Complexities: Taxes and approvals by both Central and States governments increases the transaction costs of the aviation sector
- Inadequate Human Resource Capabilities: Shortage and gaps in the availability of industry-recognised skills – from airline pilots and crew to maintenance and ground handling personnel – constrains the growth of different segments of the sector.
- Weak MRO sector: 90% of the Indian MRO work is outsourced to countries like Singapore, Dubai, UAE, Sri Lanka and others.
What are the reforms announced under Atma-Nirbhar Bharat Abhiyan?
- Efficient Airspace Management: Route dispersal guidelines (RDG), mandates airlines to fly a certain percentage of flights in smaller, unprofitable air routes. The government announced that these restrictions on the utilisation of Indian airspace will be eased.
- Development of MRO Sector: The convergence between the Defence sector and the civil MROs will be established to bring down the maintenance cost of airlines.
- Development of more airports under the PPP model with a view to improve the aviation infrastructure without the government having to pump in additional funds
- Overall Economic reform measures: Beneficial measures like extending moratoriums, reducing interest rates, improving liquidity etc. will provide impetus to the economic recovery process, including for the aviation sector.
- Legacy issues: Historically heavy operating costs that cannot be borne in the present situation
- Social Distancing norms: Stringent protocols to be put in place for air travel which means added costs for aviation industry
- Outside GST: Taxation and pricing structure of aviation turbine fuel (ATF) are not aligned to global benchmarks and is still outside the ambit of GST. This prevents the level playing field for the domestic airline industry
- Inefficient usage of AAI resources: Vacant real estate near Airports Authority of India (AAI) airports in all major centres can be monetised to increase non-aeronautical revenues.
- Resolving Air India issues: Government owned Air India is surviving on bailout packages and thus requires disinvestment
Connecting the dots:
- UDAN scheme
- National Civil Aviation Policy 2016 and National Civil Aviation programme 2018