In the last few years the government of India has taken very bold initiatives in the development of airports in India. The current regime for development of airports is probably the most liberal in the world. The frontrunners have been new airports at Hyderabad and Bengaluru and the re-development of Mumbai and Delhi airports. The experiences in development of these airports have thrown up a large number of issues which need to be addressed.

The major revenue generation avenues in an airport project may be categorised as revenues from aeronautical services and those from non-aeronautical services. Revenues from aeronautical services generally consist of landing charges, parking charges, passenger service fee, etc. Revenues from non-aeronautical services accrue from: aero-related non-aeronautical services such as revenues from cargo handling, aircraft refueling, ground handling, aircraft maintenance, etc.; revenues from commercial activities within the terminals such as advertisements, retail outlets, car parking, etc.; and revenues from other commercial activities outside the terminals such as real estate, hotels, business parks, etc.

At major airports across the world, 60-70% of the total revenue of airport operators is generated from non-aeronautical sources. However, contractual restrictions on land usage for non-aeronautical services restrict the development at these airports. For example, in the case of Delhi and Mumbai airports, the commercial use of land for non-aeronautical services is restricted to 5% and 10% respectively of the total land demised to the airport operator. The rationale for such fixation of percentages is unclear. Reasons seem to be political rather than economic.

Regulatory nuances for airport development in India are still in the early stages. The policies and regulations have been modified without keeping in view the existing contractual restrictions/ provisions. For example, the Airports Economic Regulatory Authority of India Act, 2008, has been passed to regulate the tariff for ?aeronautical services? which includes ?cargo services? within its ambit, whereas under the Operations Management and Development Agreement executed between AAI and Delhi International Airport Private Limited in 2006, ?cargo services? have been included as non-aeronautical services for which the airport operator has been authorised to fix the tariffs. These anomalies are required to be removed.

The new greenfield airport policy provides that an additional airport may be set up within 150 km from an existing airport with the approval of the central government and DGCA and a greenfield airport may be set up beyond 150 km from an existing airport only with prior DGCA approval. This clearly conflicts with the existing contractual restrictions under the concession agreements between the government and the developers of Hyderabad and Bengaluru airports which provides that no civil airport shall be allowed within 150 km radius of these airports.

Another prominent issue being faced by investors is the lack of a standard and unified FDI policy for attracting foreign investors in the commercial ventures at airports. The extant FDI policy provides for different sectoral caps even within a particular sector: airports. With respect to retail, FDI up to 100% in (a) cash and carry wholesale trading, and (b) export trading is allowed under automatic route and FDI up to 51% is allowed on single brand retailing after obtaining FIPB approval.

For a sustainable development, there should be active and inclusive participation of central government, state government, planning authorities, government agencies, investors and private participants in the development of airports being developed as PPP projects. Government along with private participants, investors and other stake holders need to consider and resolve all sensitive and contentious issues like of land acquisition, right of way, environmental problems, rehabilitation and resettlement of project affected persons, statutory clearances etc, for speedy and efficient development of these projects.

Government dithering on the new ground handling policy is a case of lack of consistent policy in this regard. Initially, for security reasons the government wanted to restrict the number of ground handling agencies at the airport. Despite having declared its intent as a policy for over two years, the government continues to allow airlines to do their own ground handling.

Development of infrastructure for aerospace is another great opportunity for development of Indian airports and their vicinities. Development of maintenance, repair and overhaul facility and facility for development and manufacturing of aircraft and engine components can be the most exciting opportunity. With the recently placed order of C 130 on Lockheed Martin Corp. and P-8I on Boeing, defence aerospace is likely to get a huge boost. Add to this the imminent possibility of government placing order for fighter aircraft, and the defence aviation will see a giant leap.

Government needs to have a clear policy as the current outlook seems hazy. A completely misdirected prevailing offset policy is a case in point.

The author is the managing partner, Link Legal Advocates & vice president, Indo American Chambers of Commerce