Does India need another aviation regulator

Written by Raj Kumar Ray | Updated: Jul 16 2013, 06:34am hrs
Why has the government mooted another regulator

At present, India has two regulators: one, the Airport Authority of India (AAI) that oversees building of new airports and managing of existing ones, and two, the Airport Economic Regulatory Authority of India (AERA) that fixes tariff and administers private companies managing airports. In addition, the Directorate General of Civil Aviation (DGCA), a division under civil aviation ministry, oversees safety and navigation operations of airlines.

The Cabinet recently approved a Bill to replace the DGCA with an independent Civil Aviation Authority (CAA) considering the evolving scenario in the aviation industry. The Bill will be introduced in the forthcoming monsoon session of Parliament. This is necessary given the double-digit growth in Indian aviation industry, especially air traffic.

In the coming years, the DGCA will struggle to actively monitor the airline sector given the growth in air traffic. According to the government data, the total number of Indian passengers carried by both domestic and international carriers increased from 13.8 million in 2000-01 to 91.8 million at the end of 2010-11, a compounded annual growth rate of 10.1%. Given the pace of increase, the civil aviation ministry estimates passenger traffic to rise to 171.8 million by end of 12th Plan (2016-17) and further rise to 696.4 million by end of 15th Plan (2031-32). The growth in domestic passengers is estimated to rise at a CAGR of 10.6% from 102.4 million at the end of 2016-17 to 447.7 million by 2031-32, while international passengers will rise by 9.3% CAGR from 69.4 million to 248.8 million.

What is the global practice

The United Nations International Civil Aviation Organisation envisages a separate regulator for overseeing aviation safety and navigational operations. Accordingly, developed nations have separate regulators for the sectorthe US has the Federal Aviation Administration while the UK has the Civil Aviation Authority.

What powers will the proposed regulator CAA get

The CAA will be responsible for ensuring civil aviation safety and regulate navigation operators and operators of other civil aviation facilities like chartered planes and helicopter services. The body will look into issues of financial conditions of airliners. The CAA will also look into matters pertaining to consumer protection and environment regulations in the civil aviation sector.

Why replace the existing DGCA with the CAA

Though the DGCA has powers to grant or cancel licences of airlines, it has limited staff and resources to meet the evolving regulatory requirements of a growing airline industry. For instance, the DGCA has to go through the usual recruitment process of UPSC, which is not only time-consuming but also restricts the government body to hire professionals at higher salaries.

In contrast, the CAA would have a free hand in recruiting its own staff and more administrative powers to deal with the fast-changing aviation scenario. The CAA will also have more financial powers as it will be allowed to collect fees for safety oversight and surveillance of air navigation services. Even at R10 per passenger, CAA would collect R170 crore from such fees by 2016-17. The CAA will be allowed to set up a separate fundthe Civil Aviation Authority of India Fundto be used for all expenses of the authority. The CAA will also get budgetary support.

Will the CAA have powers different from the AAI or AERA

While the AAI is the government body that runs airports across the nation, the AERA focuses on airport tariffs based on capital expenditure of private airport operators, ensure quality of the service, cost for improving efficiency, economic and viable operation of major airports, and the concession offered by the central government in any agreement. The AERA was conceptualised to ensure the success of public-private partnership in airport infrastructure. The CAA will oversee a whole gamut of aviation services ranging from passenger safety to navigational aspects, which are outside the ambit of AAI or AERA.

Is multiple regulatory framework better than single regulator

In India, some of sectors such as financing, power and telecom have more than one regulator. For instance, in the financial sector, RBI is the apex regulator for banks and deposit-taking non-bank finance companies, while Sebi regulates mutual funds, brokerages and finance companies, Irda oversees insurers and PFRDA regulates pension fund managers. Though all are autonomous, the Financial Stability and Development Council (FSDC), headed by the finance minister and represented by all the regulatory heads, oversees the operations of the financial sector to sort out any turf war or check contagion of any systemic risks of one sector spreading into other sectors.

While the multiple regulatory framework helps in addressing specific problems of a sector, there have been instances when turf wars have erupted due to overlap of regulationsthe wrangle between Sebi and Irda over unit-link plans of insurance companies. In case of aviation also, the government should put in place some mechanism that will ensure better coordination between regulators of the same sector.