Topic : Aviation Market in India
Topic in Syllabus: General Studies Paper 2: Indian Governance
Very few States in India have active civil aviation departments. Currently, the penetration of the aviation market in India stands at 7%. There is potential to be among the global top three nations in terms of domestic and international passenger traffic.
The passive role of states
- Civil aviation is a Central subject and barely got significant attention from the States.
- States had a passive role as the Central government continued the development of airports and enhancing air connectivity.
The increasing role of states
- The cooperation of States is seen as a major factor in the growth of the civil aviation sector.
- Regional Connectivity Scheme, UdeDeshkaAamNaagrik (UDAN) has a built-in mechanism to develop stakes of State governments in the growth of the sector.
- Thirty states and Union Territories have already signed memoranda of understanding with the Central government.
- The policies of States and Centre are now being interlinked to make flying accessible and affordable.
- For any airline in India, the cost of Aviation Turbine Fuel (ATF) forms about 40% of the total operational cost.
- Keeping petroleum products out of GST may be imperative for State governments.
- States have very high rates of VAT on ATF, as high as 25% which has dampened the growth trajectory of civil aviation.
- Any notional revenue loss can be offset by enhanced economic activities as a result of increased air connectivity to the region.
- An International Civil Aviation Organization (ICAO) study has shown that the output multiplier and employment multiplier of civil aviation are 3.25 and 6.10, respectively.
- UDAN has motivated State governments to reduce the VAT on ATF to 1% for the flights operated under this scheme.
- Airports such as Jharsuguda (Odisha) and Kolhapur (Maharashtra) have successfully attracted airlines to connect these hitherto unconnected regions.
- There are many regional airports which can be developed by States on their own or in collaboration with the Airports Authority of India (AAI).
- Different models of public-private-partnership can be leveraged to develop infrastructures.
- Innovative models can be explored to create viable ‘no-frill airports’.
- India had about 70 airports since Independence until recently. Under UDAN, the Union government has operationalised 24 unserved airports over the past two years; 100 more are to be developed in the next five years.
Linking the hinterland
- States and the Central government can play a crucial role in supporting airlines to develop air services in remote regions.
- To reduce the operational cost of airlines and airport operators, incentives from State governments such as financial support such as VAT reduction; sharing of viability gap funding with airlines, and non-financial incentives such as providing security and fire services free of cost to airport operators can be considered.
- Union government has declared concessions on excise duty on ATF and made budgetary allocations for airport development. This has encouraged airlines to operate on regional unconnected routes instead of trunk routes.
- To attract airlines from regional to remote connectivity, further interventions are necessary.
- Considering the infrastructural constraints and difficult terrain, small aircraft operators need to be encouraged.
- Areas which cannot be connected meaningfully by road or rail have to be linked by air.
- Air connectivity would not only bring down travel time but also be a boon in emergencies.
- This is also true for northeast India, the islands and also the hilly States.
- States may converge their relevant schemes relating to tourism, health, and insurance for supporting air connectivity to supplement the objectives of regional connectivity.
- States need to create a conducive business environment to facilitate the aviation sector. Developing airports, incentivising airlines and pooling resources of both the Union and State governments can accelerate the growth of the sector.
Critically analyse the issues plaguing aviation sector in India. What needs to be done to overcome these issues and concerns? Discuss.(250 words)