Federalism: Revenue Share from Airports

Federalism: Revenue Share from Airports

Context:  Earlier this month, the Tamil Nadu government issued a policy note which stated that the State government should claim compensation from the Centre in case of privatization of an airport or transfer of its assets to a third party.

• Coming out in support of Tamil Nadu, Chhattisgarh and Jharkhand followed suit and claimed a stake in revenue share from the privatisation of airports.

 How many airports have been privatized?

• Privatization of airports in India first began in 2003 after the government approved a proposal to upgrade Mumbai and Delhi in a public-private partnership (PPP) model.
  • The United Progressive Alliance (UPA) government also proposed the privatisation of a few airports, but couldn’t implement it.
• The proposal was then taken up by Prime Minister Narendra Modi. In 2019, Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati airports were leased through the PPP model.
• In 2021, the Centre unveiled its plan to further monetize 25 airports managed by the Airports Authority of India (AAI) over five years under the National Monetisation Pipeline (NMP).

 What is Tamil Nadu proposing?

• Under NMP, the Centre has earmarked four airports – Chennai, Coimbatore, Madurai, Tiruchirappalli (Trichy)- for privatisation in Tamil Nadu.
• Tamil Nadu government said as per the decision taken in 2007, to construct new airports/ expansion of airports, it is acquiring lands and handing over the same free of cost, without any burden to AAI.
• Meanwhile, AAI has now requested the State to acquire 64.57 acres of land for Chennai airport, which has led to the present policy stance by Tamil Nadu. In the present projects, the land cost forms the major share of the overall project cost.
• Tamil Nadu government states that AAI is actively pursuing the policy of privatisation of airports. In the event the state government acquires and transfers the lands to the AAI free of cost and the AAI or the Union Government transfer the assets to a third party, the value realised/revenue accrued thereby, must be proportionately shared with the State government
• The value of land, at an appropriate stage, should be converted into equity of the State government in the airport’s special purpose vehicle or an appropriate revenue sharing arrangement should be arrived at before the airport is transferred to a private party.
• The Tamil Nadu government said the policy decision was taken considering the State’s investment in land assets before the transfer to AAI.

 Why are Chhattisgarh and Jharkhand backing Tamil Nadu?

• The non-BJP ruled States of Chhattisgarh and Jharkhand have also demanded a share of the revenue from privatised airports.
• Chhattisgarh has said when the Centre and State come together for an earning project, the government’s capital is present as a shareholder in terms of the land.
• So long as it is in the government sector, Union government would be making some revenue and there would be something spilling over to the State government and there would be a benefit to the public, so that is fine.
• However, when Union government is selling it to a third entity which is a private party, then it is selling the assets of the company, which include the land also. So, the State government should be given the value of the land.
• Jharkhand also backed the proposal. “Land belongs to the State. When it is under the central government, states have no issues and give land, water and other resources. But if the Centre is handing it over to private parties, revenue should be shared with the State government.

 Conclusion

• The Ministry of Civil Aviation is yet to officially comment on the matter. Delaying the policy announcement will lead to further strains in Centre-State relations.
• A policy should be framed in this regard for all the States, as it is considered as a challenge to the fiscal federalism of the country.

Connecting the dots:

• Federalism and India’s Human Capital
• Selection of Vice-Chancellor
• Cooperative and Competitive Federalism
• Taxation and Federalism
• Upcoming Crisis in Federalism
• Fresh Stirrings on Federalism as a New Politics