Budget 2020: Funding mechanism for 100 airports will require a rethink

Updated: February 7, 2020 4:23:28 AM

Budget 2020 India: The funding mechanism for the 100 airports is unclear and will require a rethink

Budget 2020, finance minister, aviation market, MRO taxation, transport infrastructure, Krishi UDAN scheme, air india, Pawan HansBudget 2020-21: Overall, the budget speech saw the word aviation mentioned once, tourism mentioned five-times and airports mentioned twice.

By Satyendra Pandey

Union Budget 2020 India: Aviation stakeholders watched with baited breath as the finance minister announced Budget 2020. After all, the narrative of India becoming the third largest aviation market by 2030, requires structural reforms and support. Yet, as far as aviation was concerned the sector was largely overlooked in the Budget.

A total allocation of Rs 3,797 crore was made for aviation— much of this was the regular allocation. No new items were included. Nor were there any reforms announced that would unleash any kind of spirits or at the very least stabilise the losses and the cash-outflow from the sector. Maintenance Repair and Overhaul (MRO) taxation did not even find mention. Attempts on creating a leasing ecosystem, announced in the last budget, did not get further support and encouragement.

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While the minister did announce Rs1.70 lakh crore for transport infrastructure, which includes building 100 more airports till 2024, the budgetary allocation was a mere Rs465.17 crores. This too for the regional connectivity scheme (RCS) which involves revival of 50 airports.

The 100 airports announcement takes one back to 2015 when the ministry of civil aviation had an ambitious plan to build up to 100 no-frills airports. The only caveat was that the airports were to earn a return on investments (ROI) of 12%. The airports never got built. Simply put private investors under the current airport development models have been spoilt with guaranteed return on equity based on traffic levels. Unfortunately, traffic levels at regional airports are unable to sustain this. As such the funding mechanism for the 100 airports is unclear and will require a rethink. The budgetary support is, thus, unviable.

Almost no money was allocated for the turnaround plan of Air India making the government’s stance on privatisation very clear. There was also an announcement of the Krishi UDAN scheme intended to benefit farmers by enhancing value realisations in the north-eastern states and tribal districts. It is unclear whether this pertains to cargo or passenger flying (or both).

The largest allocation in the budget was Rs2,205 crore for the Air India special purpose vehicle (constituted to clean-up the Air India balance sheet). To put it in context, this comprises of 58% of the total allocation to civil aviation. Other items include Rs193 crore for the Bureau of Civil Aviation Security, Rs43 crore to the aviation regulator and Rs9.45 crore to helicopter operator Pawan Hans, which now is entering its third attempt towards privatisation. Internal and Extra Budgetary resources also provide for Rs5,026 crore to the Airports Authority of India.

Overall, the budget speech saw the word aviation mentioned once, tourism mentioned five-times and airports mentioned twice. Interestingly Rs3,150 crore was allocated to the ministry of culture and Rs2,500 crore for tourism promotion. Both of these if spent wisely may impact domestic demand.

For aviation stakeholders it was akin to listening to the musical composition 4’33” by American composer John Cage. Performed in August 1952 at the Maverick Concert Hall in New York, the audience poured in and after being seated was treated to four and a half minutes of silence. The piece continues to be one of the most controversial musical works of the 20th century. Yet the composer indicated that it actually consists of the absence of intended sounds, and, thus, leverages the sounds from the audience.

Budget 2020, as far as aviation is concerned, is a similar composition.

The author is Former head of strategy, GoAir. Views are personal

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